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TRADER MAGAZINE ADAPTIVE TRADING SYSTEMS ICHIMOKU KINKO HYO

ASIAN

CURRENCIES

DISCIPLINE HOW TO GET IT

women in trading

FINDING YOUR

TRADING STYLE

THEIR EXPERIENCE. THEIR LIFE. THEIR S U C C E S S O N T H E F O R E X M A R K ET OCTOBER - DECEMBER 2010

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E IN TUTTE LE MIGLIORI GIOIELLERIE

CONTENTs

WOMEN IN trading: Interviews with Kathy Lien and Valeria Bednarik, who share their experience as successful Forex traders, and talk about their trading strategies.

40

FX

ELEVATED forex TRADING VOLUME: BIS’ latest statistical data about Forex trading volumes might reveal the tip of an iceberg and a dynamic outlook for Forex market participants.

24

DON’T FIGHT THE FED

And the Fed is fighting:

16 05 EDITOR’S NOTE TECHNICAL ANALYSIS: 11 The art of the chart: Ichimoku Kinko Hyo. A series of articles, which teaches the use of the Ichimuko system and shows advanced analysis techniques. FUNDAMENTAL ANALYSIS: 34 Why Invest in Asian Currencies?: an analysis of Asia’s strong fundamentals. STRATEGY: 07 Dicing with the Devil: shows how the outcomes of rolling the three dice provide some insight into the way people make investment decisions.

An analysis of how the Fed will drive the USD performance over the coming months, having to face critical internal structure issues.

21 Finding your trading style: probably the biggest determinant of your trading success or failure. 48 Risk Me, Risk Me Not? explains the importance of addressing risk in trading, especially on an emotional level. ALGORITHMIC TRADING: 36 Adaptive Trading Systems: learn how ATS work through practical examples. HIGH FREQUENCY TRADING: 30 Interview with Peter Van Kleef. TRADING PSYCHOLOGY: 52 Discipline: Why you don’t have it, and How to get it: gives practical tips on how to become a disciplined trader.

FX MANAGERS: 57 Interview with Jamie Charles, who talks about GreenWave Capital’s short term, global, macro discretionary strategy. TECHNICAL OUTLOOK: 60 Trends & Targets for Major FX Rates 60 Trends & Targets for Emerging Markets 61 USD/JPY, EUR/CHF, USD/ILS INTERNATIONAL DATA: 64 FX Spot Monitor 65 Central Bank Rates 66 Economica Data - FX Poll 67 Markets View 68 ECONOMIC CALENDAR

FX TRADER MAGAZINE October - December 2010 

FX CONTRIBUTORS Alessandro Balsotti, worked for several years as market maker of Italian Lira, Greek Dracma and Czechoslovak Koruna in JP Morgan. He was then in charge of the FX trading desk in Abax Bank and Caboto. He is currently responsible in JW Partners for the FX Single Manager strategies. Tom Busby is CEO of DTI. His lifelong career in the markets started as a money manager with some of the world’s largest wire houses. He then moved into the private sector and started training others about the global markets. With guest speaking spots on Bloomberg and CNBC, he is also the author of three books, “Winning the Day Trading Game”, “The Markets Never Sleep” and “Trade to Win”. Busby hosts a daily online live trading room where traders from all over the globe join him as he covers the daily action in markets like the Emini, the Dow and Dax futures, as well as his personal stock and options picks. http://dtitrader.com/trading_education_ wedonweb_s.htm Brian Dolan is a 20 year veteran of the currency market, having worked as a senior trader and analyst at some of the world’s leading international banks, including Dai-Ichi Kangyo, Credit Suisse and American Express. In addition to overseeing fundamental and technical research at GAIN, Brian publishes a daily technical analysis report and weekly macro research report for the exclusive use of GAIN Capital clients. Frequently sought after by the financial press for his

insights into currency movements, Brian is a frequent guest on CNBC and Bloomberg TV. Brian has also published numerous articles on short-term trading strategies and risk management in journals such as Futures, Technical Analysis of Stocks & Commodities, and SFO. In the fall of 2007, Brian co-authored Currency Trading for Dummies, a sophisticated, educational resource for traders new to the Forex markets. Elite E Services is an electronic boutique brokerage specializing in currency trading, intelligence and technology surrounding foreign exchange markets. Elite E Services offers FX trading systems for clients and investors, FX consulting, technology and tools for trading, system development, custom programming, and FX solutions for businesses. The company offers it’s Forex blog at http ://www.eliteforexblog .com and a forex forum at www.eesfx.com. ATS forum: http://eesfx.com/portal/14fx-systems/164-adaptive-tradingsystems.html; FX Systems Forum: http://eesfx.com/portal/fx-systems/ Gavin Francis is Managing Director of Client Portfolio Management at Pareto. Gavin and his team are the primary client point of contact on all matters regarding the management of Pareto’s Currency Overlay and Alpha strategies. An expert in the field, Gavin’s insight in Currency and Risk Management is frequently featured in the Pareto’s quarterly newsletters; which are also published externally in reputable finance journals worldwide.

 FX TRADER MAGAZINE October - December 2010

Previously, Gavin worked as Head of Research at Paribas Asset Management and Assistant Director at County NatWest Investment Management. He is an associate member of the CFA Society of the UK. Maud Gilson, is communications and education manager at FXStreet. com. After working as a journalist and communications consultant, she joined the FXStreet.com team where she now manages the live Webinars and the education section as well as media relations. Maud is also the organizer of the International Traders Conference, an educational event that has been held in Barcelona on a yearly basis since 2007. Steve Jarvis, has well over 20 years’ experience of providing technical analysis to FX professionals. Steve is head of InterpreTA, Tradermade’s technical analysis service. Fully annotated Technical commentaries are provided on Tradermade’s Maverick charting system. Daily and intra-day updates are applied to live charts for a wide range of FX majors and FX emerging markets. InterpreTA is also now available via the Reuters platform. To arrange for a free trial, please call 020-8313-0992 or e-mail [email protected] JW Partners is an independent FX solution provider, based in Milan, with a strong FX specific know-how. JW supports institutional investors and HNWI in building quality FX multimanager portfolios, and FX underlying structures. (continue on page 6)

EDITOR’s note FX

Forex for women is catching on fast Women are getting into trading. It’s a new market trend. This year alone has seen eight new investment magazines published in Japan that cater specifically to the housewife trader. For a lot of Japanese housewives, and other young single working women, the advent of currency trading online is a serious business to the tune of an estimated ¥9.1 billion a day.

Bednarik explains how her dream to be totally independent and have time for her children became reality, as she started trading from home. Valeria quotes Alexander Elder author of Trading for a Living, Come Into My Trading Room and Entries & Exits - who finds that the percentage

The stereotype of a male-dominated market is starting to change. One of the reasons is that the FX market is open to all, no matter what your nationality or gender is. And women seem to find forex trading particularly attractive because it is fast to learn, training material and tools are now both easy to find and easy to use, and, most importantly, it can be run from home. Moreover, as you will read in one of our Women in Trading interviews, “it never gets boring!”. From this edition onwards, we will start publishing a series of interviews in partnership with FXstreet.com, with successful female forex traders, who share their experience in FX. In this issue, Kathy Lien - a famous name in the forex industry - explains how she started trading FX at the age of 18, worked for some of the biggest banks and brokers, and spent several years developing her current trading style and edge. Valeria

of successful traders is higher among women. Why? Some talk about the importance of instinct on the markets, others say women are more disciplined, and their aversion to risk is higher. For Alexander Elder, one of the main reasons is that “women traders like to take profits and focus on avoiding losses instead of trying to prove themselves right”.

It seems like there is a bright future for female traders. Stephanie Radkay is another example of a successful trader and trainer. She was one of the 5 women out of 600 men who was awarded the task to fill orders in the S&P500 Futures pit, and used to be called the “TIGR” when she was working at the CME. In her article “Risk me, Risk me not?” she insists on the importance of addressing risk first in FX. In this edition we are also introducing a series of educational articles about the use of the Ichimoku Kinko Hyo system, a popular indicator in Japan, which is still pretty unknown in the Western world. And for all traders: women, men, advanced, professional, beginners, trading from the Eastern or Western worlds… you’ll find some useful hints about how to become disciplined, and find your trading style. We also continue focusing on fundamental analysis with our expert decrypting of the Bank of International Settlements’ latest data about forex trading volumes, as well as the analysis of the current Fed’s behavior and its impact on the USD’s performance over the coming months.

Emmanuelle Girodet

FX TRADER MAGAZINE October - December 2010 

FX CONTRIBUTORS

(continued from page 4) Gabor Kovacs is a technical analyst specialized in Ichimoku Kinko Hyo. As a qualified journalist with more than 8 years experience, Gabor is the writer and editor of the Ichimoku World website, where he provides articles and video presentations about trading with the Ichimoku Kinko Hyo charting system. His weekly analyses of the major currency pairs, name IWWA, can be on view on: www.ichimokuworld.com. Andrew McKay began his career as cash and securities dealer for the Bank of New York in Sydney. He moved to London to work for a Shearson Lehman Hutton subsidiary where he progressed rapidly to the position of Senior Dealer, Futures and Options, with responsibility for implementing the hedging strategy of the treasury department, and trading futures, FX and options. On his return to Australia, Mr. McKay launched an asset management company, Armytage AAM, to apply his extensive knowledge of the markets. Mr. McKay is responsible for the trading system design and management of the Company and its Segregated Portfolios. He holds an Australian Financial Services License with the Australian Securities & Investment Commission. www.armytageaam.com www.asiancurrencyfund.com Stephanie Radkay, is Vice President of DTI www.dti-fx.com She first joined the “rough” pits of the Chicago Mercantile Exchange as a clerk for a major International Options and Futures firm. In 1993 she began her broker career as the only woman in

the Major Market Index Futures pit. She also joined her husband, Mike, after trading hours at the University of Trading to teach eager learners to pit trade. By 1995 she was awarded the task to fill orders in the S&P500 Futures pit. In 1998, Stephanie left the S&P500 Futures pit and followed the “Tech Boom” to fill orders in the NASDAQ100 Futures pit. After a break from trading she is happily trading and teaching again. http://dti-fx.com/dtifx/education.php Kevin Sollitt is an FX Portfolio Manager. Previously, he acquired an extensive FX trading background in Europe, Asia and North America, managing three bank trading teams. Kevin’s longevity in the FX world has been assisted by a willingness to embrace a collaborative approach at all levels. Combining this with his clear grasp of market dynamics & by using a wide range of disciplines has achieved positive results in many different circumstances and market conditions over the years. Jason Stapleton is a professional trader, educator and entrepreneur with more than 10 years of experience in the financial markets. He is the CEO and head trading coach at 4x Traders Live as well as a principal partner at Harborsite Capital. He has been a recurring guest on “Secrets of Success”, a financial investment radio program as well as being called on as a FOREX expert at SelfDirectedInvestor.com. Jason has written articles and is a forex news provider for a variety of Forex websites. www.4xtraderslive.com

 FX TRADER MAGAZINE October - December 2010

Editor : Emmanuelle Girodet [email protected] For advertising, contact: [email protected] Webmaster: Hristo Katzarski [email protected] Graphic design: Preslav Dobrev Editorial support: Jacopo Visetti Lorenzo Lorenzi Simon Holmes

Trading carries a high level of risk, and may not be suitable for all investors. The objective of FX Trader Magazine is to give readers the tools, training and information which will help them be better prepared to trade on the foreign exchange. However, any analysis, news, research, strategy, or other information contained on this magazine is provided as general market information and does not constitute investment advice. FX Trader Magazine, will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

Subscriptions: www.fxtradermagazine.com

STRATEGY “God does not play dice.” Albert Einstein

FX

The outcomes of rolling the three dice provide some insight into the way people make investment decisions.

DICING WITH THE DEVIL

FX TRADER MAGAZINE October - December 2010 

FX STRATEGY Warren Buffett once challenged Bill Gates to a game of dice. Gates immediately became suspicious when he was offered to choose first from a selection of unconventionally numbered dice. After inspection, he demanded that Buffett should choose first. In fact Buffett had tried to trick Gates with a set of “non-transitive dice”, which had the property that whichever die is selected, one of the other dice is more likely to show a higher number, when the two are rolled together. It is relatively straightforward to number the faces of three six-sided dice A, B and C so that A beats B, B beats C and yet C beats A. In order to develop a feel for this apparent paradox, it is worth pondering how this can be done, before reading on.

number two. But now we find that C beats A. A beats B five times in every nine. B beats C two thirds of the time. C similarly beats A with a probability of two thirds. Other solutions can be found for three or more dice.

Of the many solutions, the following example provides a useful insight. Suppose we mark all the faces of C with the number three. We can beat this with die B, by labelling four faces with the number four and two faces with the number two. Furthermore, we can beat B with die A, by labelling two faces with the number five and four faces with the

A 5 5 2 2 2 2

While this may be a mathematical curiosity, it provides some insight into the way people make investment decisions. Rolling C offers no uncertainty, so you could call this a risk free outcome. If you are paid

B 4 4 4 4 1 1

Fig. 1 Table showing the numbering of the faces of the three dice

 FX TRADER MAGAZINE October - December 2010

C 3 3 3 3 3 3

the amount shown on the upward face of the die, you would have a risk free return of 3. The outcome of B is negatively skewed: two thirds of the time you beat the risk free rate by a small amount and one third of the time you lose by rather more. This is similar to a hedge fund that goes “short volatility”, by selling options or, for example, by following the carry trade. Rolling A creates a positively skewed distribution, underperforming two thirds of the time, but experiencing larger gains the rest of the time. This is a bit like buying options or employing strict downside control to go long volatility. The following diagram plots a histogram for the outcomes of rolling each of the three dice, highlighting the positive skew of

FX STRATEGY

A and the negative skew of B. Note that the expected return for all three dice is 3. Now consider an investor holding the risk free asset C, who is considering taking a leveraged investment in hedge fund B. This will look very attractive, as it appears to be consistently beating the risk free return, especially if the track record has not yet encountered one of the rare observations in the negative tail. In contrast, hedge fund A looks very unattractive, because it regularly underperforms the risk free rate and you may have to wait a long time for a strong positive return. This explains the systematic bias of hedge funds to be short volatility and the relative rarity of long volatility hedge funds. But the question remains, would you prefer to leverage up on a strategy with regular gains and uncontrolled losses (B) or a strategy with limited losses but unpredictable gains (A). In the crisis of 2008, the financial community was systematically biased in favour of

strategies of type B that generate short term gains at the cost of occasional extreme losses. The paradox arises when comparing A against B. Due to its tight downside control and the opportunity of making significant gains, A outperforms B more often that B outperforms A. And this happens even though the same expected return as the risk free rate and both

have the same volatility. A number of lessons can be drawn from this example. Although making investment decisions involves more than just counting the number of times one thing outperforms another, this tendency does tend to make an investment more attractive. A track record that only ever outperforms the risk free rate must have been taking risk. The question is when, rather than if, we will see a sharp negative return. The second observation is that financial returns tend to be asymmetric. This characteristic is missed by investors who rely only on volatility as a risk measure. Option theory is the field of investment theory best suited to understanding and analysing asymmetric returns. This is something well understood by Messrs. Buffett and Gates.

Fig. 2 Histogram of the outcomes of rolling the three dice 10 FX TRADER MAGAZINE October - December 2010

Gavin Francis

TECHNICAL ANALYSIS

FX

The art of the chart Ichimoku Kinko Hyo

Ichimoku Kinko Hyo is a multifunctional visual trend following charting system. It has been described as ”the king of indicators” and trading or analyzing with it is a kind of highlevel art. Using Ichimoku, it is possible to get the whole picture of the market, including trend direction, the main support/ resistance levels, and exact entry or exit points. Furthermore it helps to define the strength of a signal. The system can be used successfully for all markets and on all time frames, but – like most indicators - it performs a bit better on the higher ones. In this first article we will explain the basics of analyzing with the Ichimoku Kinko Hyo charting system and introduce it in a nutshell. The aim is to give a basic knowledge enabling anyone to understand an Ichimoku report or analysis.

Ichimoku Kinko Hyo was developed by a Japanese economic journalist, named Goichi Hosoda, whose aim was to create a kind of „all-in-one” indicator, allowing deeper analysis of charts, in a shorter time. The development of the system was a huge and complex work, as there was no possibility for doing automated back tests at that time. Goichi Hosoda started the process before the Second World War, with a large group of hired students, who had

to manually backtest the different calculated formulas. Finally, after more than twenty years of testing and chiseling, Hosoda presented the Ichimoku Kinko Hyo charting system in his book in 1969, and it rapidly became the most frequently used indicator in Japanese trading rooms. In spite of being popular in Japan, unfortunately it is a kind of overmystified, exotic, and still nearly

FX TRADER MAGAZINE October - December 2010 11

FX TECHNICAL ANALYSIS unknown chart analyzing technique in the Western world. The reason of the Western trader’s abstinence could be explained using some crosscultural studies. It is proven, that Japanese people usually consider and perceive the whole picture, while Westerners usually pick the main components and concentrate only on those. Since Ichimoku is really a kind of „whole picture” system, it could be challenging to learn and use it properly, and the fact that Japanese are not interested in sharing their knowledge with the Western world (inasmuch as – among many others - the original Ichimoku books and materials have never been translated into English) doesn’t make the whole thing easier. Although the appearance of the Ichimoku Kinko Hyo system may look a bit complicated at first sight, it is doubtless that learning it is very worthwhile.

out the essence of the system well. However Ichimoku consists of five separated lines and it is necessary to use the components together to see the whole picture - the equilibrium or the disequilibrium of the market - at a glance. There is no point about using the lines separately. While doing chart analysis the components have to be compared with each other and with the price too.

- Chikou Span (Lagging Span) is calculated as current price timeshifted backwards 26 periods. It is a very special component of the system, and can be used in many ways. The most common technique is to observe if Chikou Span is above (bullish sign) or below (bearish sign) the price. - Senkou Span A (Faster Span A) is calculated as (Tenkan-sen + Kijunsen)/2. It forms the unique and spectacular Kumo (Cloud) feature of Ichimoku with Senkou Span B, and represents the possible support and resistance levels of the future.

In spite of its popularity in Japan, Ichimoku Kinko Hyo is an over-mystified, exotic, and still nearly unknown technique in the Western world

To be able to analyze (or understand an analysis) with Ichimoku Kinko Hyo, the first thing to acquire is it’s basic terminolog y. In the term, Ichimoku Kinko Hyo, Ichimoku means: one glance, Kinko means: equilibrium or balance, and Hyo means: chart. So it could be translated as: ‘One glance equilibrium chart’, or ‘Chart balance at a glance’. The name brings

The lines of the Ichimoku Kinko Hyo are the following : - Tenkan-sen (Conversion line) is calculated as (Highest High + Lowest Low)/2 for the past 9 periods. It represents the strength of the momentum and generates a signal if it crosses up (bullish sign) or down (bearish sign) Kijun-sen. - Kijun-sen (Standard line) is calculated as (Highest High + Lowest Low)/2 for the past 26 periods. It can behave as a strong support or resistance line and as a key line in predicting trend changes, it is less sensitive to minor price movements.

12 FX TRADER MAGAZINE October - December 2010

- Senkou Span B (Faster Span B) is calculated as (Highest High + Lowest Low)/2. As I mentioned previously, it forms the Kumo with Senkou Span A, and represents main support and resistance levels of the future. The standard settings for the Ichimoku Kinko Hyo indicator are: 9-26-52. The base number of the formula is 26. The common view is that the number 26 represents a standard Japanese business month (including Saturdays), the number 9 represents a week and a half, and the number 52 represents two months. Some hold different views and say that the calculation of Goichi Hosoda is based on - among others -

TECHNICAL ANALYSIS

FX

the Kumo, the bottom line of the cloud is the first resistance, and the top of the Cloud is the second resistance line. The thickness of the Kumo is very important too, as it is more difficult for the price to break through a thick cloud, than a thin cloud.

In the small picture the red line shows the value of the Daily chart’s Kijun-sen support. It is exactly the same as the bottom line of the Kumo in the H4 chart.

Moon cycles, as the number 26 is the best approximate number to express a full Moon cycle, the number 9 represents one and a half quarter of a Moon cycle, and the number 52 represents a double Moon cycle. Anyway, the system works best with these numbers, however it is possible to use alternative values too. When creating an analysis with Ichimoku, it is strongly recommended to always start from the higher time frames and proceed with lower time frames successively. It is easy to notice that Ichimoku’s components of the higher time frames have an effect on the lower time frames. For example, it is common that the Daily chart’s Kijun-sen’s value is the exact value of the 4 hours Senkou Span A or B (the top or the bottom of the Kumo).

determination is: if price is above Kumo the overall trend is bullish, if it is below Kumo, the overall trend is bearish. The Kumo itself is a kind of ‘no man’s land’, as it is not recommended to trade, when the price is moving in the Cloud. The top and bottom of the Kumo (the Senkou Span A and B lines) are very strong support and resistance lines. If the price is above the Kumo, the top line of it acts as a first support, and the bottom line acts as a second support. When the price is below

2. Tenkan-sen versus Kijun-sen The fact that Tenkan-sen is below Kijun-sen supports a bearish move, the opposite of it indicates a bullish move. It is always recommended to check the position of the price versus Tenkan-sen and Kijun-sen too. If the price moves quickly and leaves behind Kijun-sen, it usually turns flat, and, in order to dissolve the disequilibrium, it attracts the price back. Then, they both continue the movement together. 3. Chikou Span versus price and Kumo If Chikou Span is above the price, the trend is bullish. If it is below the

The following details should always be determined in a Ichimoku Kinko Hyo analysis: 1.The position of the price versus Kumo The fundamental of trend

Example: After the price breaks out from the Kumo cloud on the down side, it stretches down a bit too quickly and leaves Kijun-sen behind. The Kijun-sen then turns flat, and attracts the price back to dissolve the disequilibrium and create equilibrium. Then both the price and the Kijun-sen continue their way down. FX TRADER MAGAZINE October - December 2010 13

FX TECHNICAL ANALYSIS

price, the trend is bearish. If Chikou Span is above the Kumo, it supports the bullish movements. If it is below the Cloud, the bearish movements are supported. Chikou Span is a great tool to filter the signals generated by the other components. 4. The color of the Kumo future It confirms that the trend is tending to be bullish or bearish. Light Kumo indicates a possible uptrend, a dark Kumo indicates a possible downtrend. The ‘Kumo twist’, when Senkou-Span A crosses SenkouSpan B and the color of the Kumo changes, indicates a possible change in the trend. After getting an overall picture at a glance, the next step is to look for exact entry opportunities using some of the available Ichimoku trading strategies or methods. The basic methods are: Tenkan-sen/ Kijun-sen cross, Kumo breakout, Chikou Span/Price cross. The advanced methods are based on the basic ones, with some modification or with a combination of other tools (for example Pivot points or index charts).

A. Tenkan-sen/Kijun-sen cross This is the most well-known Ichimoku trading method. If the Tenkan-sen crosses up the Kijunsen, that is a buy signal. If it crosses down Kijun-sen, that is a sell signal. Looking at the previously mentioned analysis steps, if the price is above the Kumo (for a long signal), the signal is strong. If the cross happens in the Cloud, the signal is neutral. Finally if it happens below the Kumo, the long signal is weak. The Chikou Span should at least be above the price (for a strong signal - naturally - it should be above the Kumo too), and the Kumo future should support the move too. For a sell signal, the opposite applies.

14 FX TRADER MAGAZINE October - December 2010

B. Kumo breakout If the price enters into the Cloud and then brea ks out from it, that is a Kumo brea kout. Chikou Span should be on the rig ht side of the price, and it should brea k out and close outside the Kumo as well. The Kumo f uture a lso has to support the dire ction. It is a fre quent happening that, a lthoug h price brea ks out from the Cloud, Chikou Span bounces back from the top (or bottom) line of it, and then the price moves back into the Cloud too. This happening is only a fa ke brea kout, so it is a lways re commende d to che ck e ver y line of the Ichimoku system, and enter into a position only if a ll the components point in the same dire ction and support the move. C. Chikou Span/Price cross If Chikou Span crosses up the price, that is a buy sig na l. If it crosses down the price, that is a sell sig n. The Kumo determines the streng th of the sig na l here too. A buy sig na l can happen

TECHNICAL ANALYSIS

FX

their stop with the Kijun-sen line (+buffer) as a trailing stop. The same applies to the take profit methods.

above the Kumo (strong ), in the Kumo (neutral ) and below the Kumo (weak). For a sell sign, the opposite applies here too. For stop -loss, it is possible

to use various techniques, for example the other side of the Kumo (+buffer), the last hig h/ low or the last round number. Many Ichimoku traders move

After this theoretical summar y of the Ichimoku Kinko Hyo charting system, the most important thing is to put this knowledg e into practice. From the next issue of FX Trader Magazine we will start publishing practical chart analyses and sharing some of the less known advanced Ichimoku techniques.

Gabor Kovacs

www.gomarkets.com.au +61 3 9670 3055

A Product Disclosure Statement and Financial Services Guide for this product is available from GO Markets Pty Ltd and should be considered before deciding to enter into any derivatives transactions. Derivatives carry a high level of risk to your capital. Only speculate with money you can afford to lose. AFSL 254963 ABN 85 081 864 039

FX fundamental analysis “Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” Ronald Reagan

Don’t fight the Fed… and the Fed is fighting. Different phases for the Dollar The last three months have seen the dollar decline significantly on a global basis. Declining expectations for US growth relative to global growth have been a key driver. Over the last 4-5 months we

have been through at least three distinct phases for the dollar: • In the first phase (in May and early June) the dollar gained because of a flight-to-safety dynamic. At the time, the US growth picture looked fairly robust, and there was plenty of uncertainty about the outlook

16 FX TRADER MAGAZINE October - December 2010

for the eurozone, global growth and financial market stability. This combination generated a strong safe-haven bid for dollars and indicators of speculative positioning showed record long USD positions in the futures market and elevated skew in favour of USD calls in the options market.

FUNDAMENTAL ANALYSIS FX • In the second phase (from earlyJune until the first week of August) the USD weakened as markets priced in a form of global growth decoupling. The move happened globally and involved both reduced concerns about financial market stability (less safe-haven demand for USD) and greater optimism about global growth relative to US growth. The USD move was broad based, with large moves in EUR , JPY and AUD. The clear underperformers were CAD and MXN, due to Canada’s and Mexico’s close ties to the US economy. • In a third phase, after some significant correction in Dollar weakness following the August 10th FOMC the USD started again to lose ground. The macro picture somehow stabilized according to some better than expected economic figures (nonfarm payrolls and retail sales among others). The driver of the weakness was then not a growth problem but the willingness of policymakers to do ‘whatever it takes’ (i.e. Quantitative Easing 2) in case of deflation risks becoming more concrete. Bernanke, after disappointing markets on this topic at the August FOMC (generating some transitory Dollar strength) was more accommodating at the Jackson Hole symposium and even clearer at the very recent September FOMC. The last line of the press release is being viewed as the most critical: the Fed is now saying that “the

DXY (Dollar Index) lower > Dollar is getting weaker

Committee will continue to monitor the economic outlook and financial developments and is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate”. The same line from the Aug statement read as follows: “The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability”. The addition of the line “accommodation” is being viewed as a stronger message from the Fed that it is leaning towards further QE, potentially at the Nov meeting. Fed behavior will definitely drive USD performance in the next

few months. And how the Fed will act is not so easy to predict since internally voices have been pointing in different directions lately. Just for the sake of tidiness it might be of help to remind how the most influental central bank in the world is managed and which critical issues the central bank might face in the not too distant future. The Current Structure of the Federal Reserve System The Federal Reserve System consists of a Central Bank in Washington and twelve Federal Reserve District (or regional) Banks. The Central Bank’s authority resides with the seven member Board of Governors, one of which serves as chair (currently Ben Bernanke).

FX TRADER MAGAZINE October - December 2010 17

FX FUNDAMENTAL ANALYSIS The Federal Open Market Committee oversees monetary policy and is composed of the seven governors and five of the district presidents. The president of the New York district is always one of the five, and the other four are rotated among the remaining eleven. The chart below gives you a visual graphic of how the system is organized. Note that the seven governors are appointed by the President and must be approved by the Senate. Further, the board of governors appoints three members to each of the nine-member boards of directors of the local districts. In fact each of the District Banks has a nine member Board of Directors along with a bank President. Currently, the nine member Board

of Directors at each of the District Banks consist of three Class A directors, three Class B directors, and three Class C directors. Class A directors are elected by member banks within the district and are professional bankers. Class B directors are also elected by member banks in the district, but these are business leaders, not bankers. Finally, Class C directors are appointed by the Board of Governors and are intended to represent the public interest. Class B and Class C directors cannot be officers, directors, or employees of any bank, and Class C directors may not be stockholders of any bank. One Class C director is selected by the Board of Governors to serve as Chair of the Board of Directors. The Board of Directors selects the President of each District

18 FX TRADER MAGAZINE October - December 2010

Christopher Dodd, Democratic Connecticut Senator, Chairman of the Senate Banking Committeepast interventions (courtesy of Deutsche Bank).

Bank, but the President must be approved by the Central Bank’s Board of Governors. From this structure it is possible to say that despite having 7 of 12 members of the FOMC (the Board of Governors) of pure political nomination, it would be quite difficult to steer monetary policy away from some Fed independence. A Fed governor is supposed to serve for 14 years, and the terms are staggered. That way, no President gets to appoint more than a few governors and cannot stack the board in favor of certain policies. But that has changed with Obama. Two nominations by Bush have been held up for several years, and with the resignation of Vice-Chairman Kohn, President Obama now gets to appoint four governors (three of them quite soon, likely they are going to be Peter Diamond, Sarah Raskin and Janet Yellen, currently San Francisco Fed President), and he has almost three years left in his term. Also there is a proposal for a law change that could get

FUNDAMENTAL ANALYSIS FX (including Kohn substitute) need to be appointed, as mentioned before. Dudley is the New York Fed President. Rosengren (Boston), Bullard (St. Louis), Pianalto (Cleeveland) and Hoenig (Kansas City) are the 5 rotating (voting in FOMC) presidents among the 12 regional banks. While we might look at the Fed for significant FX drivers going towards year end, the most important FX ‘event’ in the last few weeks, we have to admit, has been the MOF/BOJ intervention in USD/JPY.

through the Congress (‘the Dodd proposal’ a broader law which would also strip the Fed of its role as bank supervisor): the Board of Directors for each District Bank would be chosen by the Central Bank’s Board of Governors (who are themselves chosen by the President with the advice and consent of the Senate). The chair of the Board of Directors at each District Bank would be chosen by the President and confirmed by the Senate. Also the proposal would give the President the right to appoint the president of the New York District (always a voting member of FOMC). If things gets worse and the Fed struggles to fulfill its mandate (i.e. price stability and full employment) it is very likely that the Federal Reserve will have to

fight for its independence in such a political climate. Stay tuned. The next FOMC (November 2nd-3rd) is going to be an interesting one. Despite Ben Bernanke being a consensus builder, we still have several voices not exactly unanimous in such a complicated macro situation where resorting to unconventional measures is likely to be needed. After the August 10th decision to suspend any ‘exit strateg y’ and to keep the Fed (expanded) balance sheet unchanged paving the way for eventual future QE2, the WSJ ( Jon Hilsenrath article) depicted the FOMC situation this way.

Please note: Bernanke, Kohn (now retired), Warsh, Tarullo and Duke are five Fed Governors (all voting members of FOMC). Three more

The facts. Around 2:00 am BST on Wednesday September 15th, not long after the price dipped below 83 for the first time since 1995, the BOJ started to buy aggressively USD/JPY. Nikkei reported that they sold over 2 trillion Yen to buy Dollars in the biggest single day intervention since April 10th, 1998 (2.6 trillion Yen) when they were buying JPY and selling USD. This is the first intervention since March 2004. During the previous episode of intervention, the MOF began the intervention in January 2003 at Y118. The yen remained in the Y119-116 range thereafter until September 2003 while the MOF continued to intervene, but the yen appreciation renewed from mid-September 03 (Dubai G10), drifting to Y103 level in April 2004, despite the continuous massive intervention by the MOF. The total intervention during January 2003 – March 2004

FX TRADER MAGAZINE October - December 2010 19

FX FUNDAMENTAL ANALYSIS accumulated to Y36.3 trillion or $326 billion (exchange rate at that time). How much can the MOF do? There is a budget rule setting the upper limit of FX-bill issuance. The current limit is Y145 trillion, while the current outstanding is Y110.2 trillion. The MOF can do Y35 trillion of intervention now, but the government can submit a request to raise the FX bill limitation to the Diet, if necessary. The fact that Yen intervention didn’t turn the trend the last time (2002,2003-2004), took a very long time (and worse levels) on previous occasions (1993-95 and 1999-00) or hasn’t so far worked for the Swiss may mean the Japanese only intend to smooth the ascent of the Yen. Indeed, the trinity of co-ordination, divergent monetary policy and market volatility that has typically been needed to turn currency trends through intervention is clearly missing , further supporting this view. We are skeptical that the tide could be easily turned without those conditions. Prevailing flows are always difficult to stop and reverse quickly. In the first six months of 2010 China has been buying Japanese T-Bills at the pace of roughly 3.5 billion USD per month (around 20 times the pace of the previous five years), likely diversifying its massive FX reserves away from the Dollar (and maybe the Euro). We see these possible implications.

USD/JPY not reacting quickly - if at all - to past interventions (courtesy of Deutsche Bank).

1) Possibly the Yen will still reach an all-time high against the dollar. The underlying fundamentals of low US rates, Japanese current account surplus and the absence of a valuation extreme are still in place. It’s worth remembering that the all-time high in the JPY reached in early 1995 occurred with the backdrop of inter vention (see chart).

interference so far. Perhaps, the seeds of a new Plaza Accord may soon be sown, or perhaps, as usual, the Euro could take the brunt and be forced to take the appreciation. Just a few hours after the inter vention started Jean-Claude Juncker who chairs the Eurozone finance ministers criticized the BoJ inter vention saying “Unilateral actions are not an appropriate way to deal with 2) US mid-term elections are global imbalances.” Criticisms coming soon. China’s managed are coming from the US Congress appreciation of the Yuan and as well. now Japanese inter vention could raise political tensions in G20. 3) The BoJ is yet another buyer of With the Yuan heavily managed, US Treasuries – the pressure for BoE often talking down Sterling , lower bond yields may continue. SNB inter vention in CHF and This should be supportive of now MoF/BoJ inter vening in broader carry trades. JPY, only the Euro and the Dollar have escaped any policy Alessandro Balsotti

20 FX TRADER MAGAZINE October - December 2010

STRATEGY

FX

Finding Your Trading Style Trading is all about making decisions. That seems simple and straightfor ward enough, but I ’m not referring to the typical ‘ buy or sell,’ ‘how much,’ or ‘where’-type trading decisions. Instead I ’m talking about the likely biggest trading decision you’ll ever makeDeciding exactly what kind of trader you want to be. How will you approach the market ? What timeframe will you focus on? What will inform your trading decisions ? In short, deciding what trading style you will pursue will probably be the single biggest determinant of your trading success or failure. From my experience, most traders don’t even explicitly acknowledge this question,

much less get around to actually settling on an answer. But the best traders always do and that’s how they sur vive year after year, market after market. Such trading success is usually attributed to ‘discipline,’ but that raises the

question “Disciplined to what ?” The answer, I would suggest, is maintaining a disciplined trading style. But you can’t achieve that discipline if you don’t settle on your trading style

in the first place. I spent the first dozen of my 20+ years in FX as a spot marketmaker and proprietar y trader in New York, so I know firsthand the difference between a disciplined approach and an undisciplined trading style. Like many new or aspiring traders, I spent my first couple of years trading without an explicit style and my results showed it. Money made one month would be given back the next, or money made in the morning would be coughed up later that same afternoon. It was a frustrating experience to say the least. One thing I was doing right was monitoring my daily P&L and analyzing the results on a monthly basis,

FX TRADER MAGAZINE October - December 2010 21

FX STRATEGY which is something I would urg e a ll traders to do. It’s the only way to obje ctively e va luate your trading results, a s memories can b e tricky. The ke y metrics I fo cuse d on were the number of winning/losing days and the avera g e win/loss amount. I wa s winning more days than I lost ( g o o d ), but my avera g e loss wa s g reater than my avera g e win ( bad ). That pointed me to the solution to my problems, namely cutting losses so oner, but it a lso force d me to re consider my lack of a defined trading style. I went on to de velop a more

explicit trading approach, writing down explicit do’s and don’ts to remind myself and reinforce discipline, and my results improved significantly. One simple example : my P&L ana lysis a lso re vea le d that I wa s routinely losing money on the last trading day of each month. S olution : I stopp e d trading the la st day of the month, no matter what wa s happ ening . There’s no universa l st yle that fits a ll traders a ll the time and we a ll have to g o throug h a pro cess, fre quently tria l and error, to se e what

22 FX TRADER MAGAZINE October - December 2010

works best for each of us. The ma in comp onents of st yle that I fo cus on are : trade timing , trade rationa le, and trade mana g ement. Persona l circumstances will frequently dictate key elements of trading st yle, such a s trade timing , which I use to refer to trade frequency/duration (e.g . intraday/multi- day). For instan c e , i f y o u have a f u l l-tim e j o b o uts i d e o f tra d ing , y o u’re pro b a b l y n o t g o ing to b e a b l e to watc h marke ts an d tra d e a c ti ve l y on an intra - day b a s i s , s o

STRATEGY you’ll probably want to focus on a medium to long er-term trading st yle. If you’re still determined to pursue shortterm trading (say, trading European/London markets in the Australian evening ), it helps to explicitly r e c o g n i z e your choice to reinforce trading discipline. In this case that means never allowing a shortterm trade to turn into a long term trade. Even if it’s a winn er, th e bre a k in st y l e d i s c ip l in e wi l l ta ke y o u away f rom y o ur c ons c i o us p lan into un c har te d water s wh ere b a d th ing s can happ en .

star t p ointing at te chnica ls to rationalize keeping a trade open, even if the fundamental picture has not played out as expected. Even worse, perhaps, are chartists who re vert to

FX

Trade manag ement, or risk management more accurately, is usually determined by the economics of your trading account, which I would sug g est is the star ting p o int for e ver yone. S i n c e we’re most concerne d a b o u t preventing losses, the first question is ‘what is the ma ximum loss I ’m prep are d to susta in?’ The se c ond question is ‘where am I wrong ?’ The answer to those two questions will dictate your maximum position size based on your stop loss. Above all, vow to stick to your risk management plan as an integral part of your trading st yle.

Deciding what trading style you will pursue will probably be the single biggest determinant of your trading success or failure

For tra d e rationale, I focus on te c hn i ca l vs . fundamental a p p r o a c h . Yo u can us e whichever approach you think works b est for you, but b e clear to yourself as to the basis of the trade (write it down in a journa l ) b efore you e ver op en it up. Once a trade is entere d , it’s a ll to o common for f undamenta l-t yp es to

economic analysis to justif y a technical trade set-up g one awr y. My own preference is to blend the two, developing a directional view based on a macro -economic outlook , but defining entr y/exit based on technicals.

I can’t tell you what approach is b est for you, but I can tel l you that not having settled on a trad ing st yle is no appro ach at a l l .

Brian Dol an

FX TRADER MAGAZINE October - December 2010 23

FX forex watch

Elevated Trading Volume: The Tip of an Iceberg ?

C

onsistent with our column in the last issue of FX Trader mag azine, we hope to provide some thoug ht-provoking insig hts and obser vations on recent developments in the Forex market primarily targ eted

at individuals, retail investors and those institutions p erhaps re c ently ne w to the area . As we are a l l aware, trad itiona l financia l markets rema in in a state of flux with investors ner vous and tire d of c onsistent

24 FX TRADER MAGAZINE October - December 2010

annua l ne g ative returns various a sset cla sses .

in

Interesting ly, most pric e char ts of c ommo d i ties, e qu it y ind ic es, c ommercia l rea l estate, residentia l rea l estate, mun icip a l and g overnment

forex watch

bond yields tell pretty much the s am e stor y an d don’t g enera l ly paint a pretty picture for those s e e king cap i ta l g rowth . Even th o s e rare yet l ikely temp orar y su c c ess stories c o u l d n ow f a c e risk s of their re sp e c ti ve b u b b les bursting , a s wi th cr u d e o il ha lving in va lu e o ver th e p a st c oup le of y e ar s . In a s im ilar vein and d e sp i te c urrent attention to c er ta in pre c i o us meta ls we se e a d i stin c t ri s k that the pric e of gold with its negative carr y may ultimately prove expensive f or inve stor s , e sp e cia l ly those re c entl y invo lve d in the market.

Sim ilarly, the underlying risk of default by municipa lities in certain areas may be higher than is truly re cog nize d g iven the disposition of many authorities to run deficits, whether by choice or not. The point is that being positione d around crowd menta lit y can be g reat for a while until e ver yone has the same exposure-se e NA SDAQ euphoria circa year 2000 and the bullish carr y trade in Forex up until Aug ust 2008. Even with this backdrop of uncerta int y, Forex volume continues to be propelled higher and has shattere d pessimistic

FX

expectations of contraction that were generated in the summer of 2008 and have be en overhang ing the market until re cently, a lbeit to a lesser deg re e. To expla in : in Q2 of 2010 over fifty significant monetary bodies contribute d their colle ctive finding s to the eig hth Triennia l Centra l Bank Sur ve y of Foreig n Exchang e and Derivatives Market Activit y with a common purpose of achieving an accurate measurement of comprehensive market data refle cting the size, shape and dire ction of flow in the cap ita l markets mentione d ab ove.

FX TRADER MAGAZINE October - December 2010 25

FX forex watch

The Bank for International Settlements coordinated the results from over 1,300 market entities. For the first time since inception, the ‘g lobal foreign exchang e markets’ categ or y includes all five currenc y instruments of Spot, Outrig ht, For wards, Swaps and Options. According to our independent research, many positive surprises were revealed by the preliminar y headlines mostly due to much hig her than expe cte d trading volumes. If these numbers are verifie d in November ’s fina l release of statistica l data by the B IS, the y may conta in ver y bullish clues towards a dynamic outlook for Forex market participants that were tempere d during the market meltdowns in the summer of 2008. The sur ve y conta ine d a lot of g ood news se eing a 20% boom in g loba l turnover since the last sur ve y in 2007 with the closelywatche d avera g e da ily turnover shooting to the $4 trillion mark . This relatively mete oric rise was primarily fe d by a reporte d and approximate 50% jump in spot trading to $1.5 trillion per day from $1 trillion in 2007 (the spot market itself accounts for a lmost 40% of tota l Forex transactions).

Our point about the tip of this ‘iceberg ’ being re vea le d may be supporte d by a noticeable increase in trading activit y by ‘other financia l institutions’, rising 42% to $1.9 trillion from 3 years a g o. This categ or y includes non-reporting banks, various f unds and insurance companies, sug g esting that Forex has firmly arrive d on the radar of these powerf ul entities. Furthermore, the volume of reporting dea lers trading with such counterparts actua lly overtook that - among that same g roup of reporting dea lers - for the first time. As we hig hlig hte d in our pre vious article, Forex is truly be coming a more g loba lize d business thanks mostly to an awareness of the product,

26 FX TRADER MAGAZINE October - December 2010

te chnolog ica l advancements, improvements in he dg ing efficiencies via competitive pricing and e volutionar y price transparenc y. Emphasizing these aspe cts, cross-border transactions in the sur ve y accounte d for 65% of a ll FX turnover. The UK increase d its market share to lead the pack with a lmost 37%, more than t wice that of its closest pe er (the US) at 18%. Austra lia and Canada a lso increase d respe ctive market share perhaps due in part to strong banking systems and commodit y demand. Those are a few hig hlig hts and we awa it the fina l release in November with interest. For f urther information, the BIS provides comprehensive information on its website citing

forex watch

FX

easing , thus causing further bids in the Treasur y market and a counter-intuitive demand for the Greenback amidst falling yields. With this and other similarly strang e market dilemmas in focus the best polic y we have found is to react to the markets once a trend asserts itself, which can often take weeks or months to confirm, establishing entr y and exit parameters around the trend move. sources and detailed statistical analysis at http ://www.bis.org/ publ/rpf x10.htm

and the same on any equity market rally, ag ain based on recent behaviour.

S o what does this mean for the rema ining few we eks of 2010 and perhaps more importantly be yond ?

The market’s quandar y over how to position for a fluctuating USD will surely be a driving factor g oing for ward.

We don’t pretend to know a lthoug h as we g o to print, the anniversar y of “Black Monday ” is looming larg e and it would be ver y surprising if FX markets did not at least anticipate some kind of potentia l e quit y market panic as we enter October ; if re cent price action rema ins consistent we will se e riskaversion ta ke hold that results in purchases of CHF and JP Y and sa les of ‘risk’ currencies like AUD, M XN and N ZD. Should such an outcome not eventuate we would naturally expect the reverse of the above

One school of thoug ht asks whether a Dollar can be worth more than its previous value if there are more in circulation as a result of the QE-induced printing of them. Conversely, if China and Japan both continue to need Dollars in the midst of their respective reser ve asset diversification, US 10-year yields will continue to remain pressured lower from their present level of 2.7%, raising the issue of deflation once more. With elevated unemployment levels in the US this could see the door opened for more Fed

Howe ver the FX markets behave rema ins to be se en. We can offer some discussion points base d on ane cdota l e vidence and market g yrations that in any e vent lead us to belie ve Forex markets are well positione d to f urther increase their g rowth, e ven from what are relatively ele vate d le vels and reg ardless of how the stock or bond markets may perform : • As the fluctuations and volatility of 2010 have reminded us, there are no sure thing s in FX . That sa id, one aspe ct that se ems a lmost certa in to be come an increasing rea lit y is that currenc y is now being ta ken more seriously than e ver before as a re cog nize d asset class rather than being pre viously viewed simply as a tool enabling switching between one product or reg ion to another (e.g . Stocks to Bonds, US to Canada).

FX TRADER MAGAZINE October - December 2010 27

FX forex watch the majority either does, or expects to do so. Although only a minority of investors currently includes FX among their investment products we feel that in several years’ time it will be quite normal to have Euros, Yen, Aussie Dollars and others keeping company with or even surpassing holdings of ‘blue chips’.

• In an increasing ly fiscally disciplined and cost-conscious environment around the world, participants now realize they are leaving money on the table if proper attention is not being devoted to management of respective Forex needs and requirements. • The market remains deep and liquid at institutional and retail levels, the latter arguably bolstered with introduction of NFA/CFTC regulations in the US designed to assist and protect new investors. http://www.nfa.futures.org/ • Technolog y continues to improve with widespread availability to real-time pricing and minimal latency between trade initiation and conclusion. • Volume in ‘Emerging Markets’ is in its infancy compared to say G-10 currencies. With a paradigm-shift arguably underway in established markets we anticipate strident increases in Asian and Latin

American market volume as pricing inefficiencies become minimised, especially when such factors may simply exist due to legacy issues. • We continue to see great demand for and interest in the Brazilian Real (BRL) and Mexican Peso (MXN) despite recent jitters and weakness. This point may seem more credible when it seems clear that the Eurozone panic due to the Greek crisis earlier in 2010 directly affected these markets to extreme levels and became the main catalyst for a global market switch from a cautiously bullish outlook to a (perhaps unjustified) bearish stance. Time will tell, especially once the political situations in the southern hemisphere stabilize and the Eurozone fiscal issues continue to linger ad when investors see the potential upside in Latin America. • Perhaps most compelling is the simple fact that several years ago very few investors held foreign stocks in their portfolios and now

28 FX TRADER MAGAZINE October - December 2010

The fact that many investors who were previously unaware of the uncorrelated potential offered by Forex are now getting on board with the idea quite literally speaks volumes. We have attended numerous conferences with industry colleagues where companies like ours are seeing a markedly higher level of interest in the FX market and we suspect that correct application of a tactical and rule-based system applied to the global currency world can lead to success, theoretically reducing overall portfolio risks for investors wishing to diversif y. Forex has been around for a long time and although the concept is not overly difficult to grasp, navigation of unfriendly or peculiar terrain where the rewards that we speak of are possible can be tricky without expert guidance - we highly recommend research, professional assistance and appropriate counsel before leaping into the unknown.

Kevin Sollitt

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FX HIGH FREQUENCY TRADING

Peter Van Kleef Peter Van Kleef, CEO of Lakeview Arbitrage, is currently leading a series of High-Frequency Trading Experts Workshops in London, New York, Dubai, and Hong Kong. Mr. Van Kleef managed significant hedge fund type investment portfolios and quantitative trading departments for, among others, Cooper Neff, Salomon Brothers, HypoVereinsbank and Credit Lyonnais. He has over 15 years of experience in the development and running of sophisticated automated trading operations. He is a frequent speaker

on complex arbitrage strategies with a focus on volatility arbitrage and high frequency algorithmic trading. He is also a well-known consultant to the investment community with regards to trading, risk management, operational and strategic issues.

FXTM: How did you get into High Frequency Trading? Can you tell us a little bit about your background and experience as a trader? PVK : During my studies, I was doing a stint at Salomon Brothers in the equity derivatives team in Frankfurt, Germany. We were arbitraging the index future against its components in the old IBIS and DTB trading systems, which were some of the first platforms for electronic trading. I was also market making the DAX options. This was in the early 90s. After finishing my studies in the US, I started working for Cooper Neff, which at the time was one of the leading players in the early days of high frequency trading. After that I had stints at DRW and Transoptions. All these firms were early adopters of electronic high frequency trading and at that time leaders in their field. It was immediately apparent that by having superior technology you could gain a significant advantage over your competitors and

that you could generate outsize profits without outsize risk. After that, I started working for some larger banks such as Credit Lyonnais and HVB and helped them build up their electronic trading capabilities with the knowledge gained at the early leaders in the field. So I pretty much got in at the starting point of electronic high frequency trading and never looked back. The speed race you are seeing now is just a repetition of what happened in the late 80s/early 90s when markets first got electronic and I am sure it will end in a similar way. There seem to be cycles in the market.

Peter talks to FX Trader Magazine about his experience as a trader and explains the main benefits and risks involved in High Frequency Trading.

INTERVIEW

FXTM: Can you explain what high frequency traders do and how they trade? PVK : Generally traders in this segment try to analyze the markets faster than their competitors and also exploit opportunities faster than anyone else. There are basically two

30 FX TRADER MAGAZINE October - December 2010

distinct segments. The first one is where people rely mostly on speed to get trades that, for example, correct mispricing across different markets. Those trades are nearly risk free for the fastest and therefore competition is fierce. The second segment relies more on a strategic advantage by looking at the same data differently or looking at other data such as news in combination with market data. Here speed is still very important but know-how and strategy are at least equally important. As both approaches require the analysis of hundreds if not thousands of securities and their order books in real time, plus potentially other types of information, this kind of trading can’t be done by humans. Computers do all the analysis and also execute the trades. The job of the trader is to come up with the strategies the computers are supposed to run and to help the IT staff to implement them. After that, traders are monitoring the trading and setting the parameters of the strategies. The trader

HIGH FREQUENCY TRADING

therefore has to be more the responsible and careful type rather than the aggressive gun slinging type of the past. Some IT background also doesn’t hurt. The machine always only trades as good as the trader that designed the strategies and the IT person that implemented them.

the necessary skills and experience certainly is worthwhile. Making sure that there is no single point of failure and starting small and in a controlled environment is also important. FXTM: Why is there such a controversy surrounding HFT in the markets today? PVK : Because it’s always nice to have someone to blame to raise one’s profile, especially when most people don’t understand the subject matter. It’s very easy to point the finger when someone doesn’t have a large lobby group. It’s always been in fashion to blame people with superior knowledge and technology for the evils in the world. People are always afraid of things that are new and that they don’t understand.

FX

from home. Even if you want a state of the art setup, it doesn’t need to break the bank. HFT trading has become affordable for almost anyone. FXTM: What are the most profitable used HFT strategies? PVK : Anything where people look at data that the competition doesn’t look at and that look at data differently than other people. Furthermore simple strategies. The most complex ideas rarely fly.

FXTM: What are the benefits of HFT for the markets? PVK : HFT certainly ensures that prices across venues stay in line. Any significant deviation is arbitraged in split seconds. This is of course very valuable, as it ensures FXTM: Is it true that the winner, in that differential pricing gets eliminated other words, the fastest, takes it all? fast and people receive fair prices across PVK : On pure speed competition venues. The second big advantage is that it yes, unless the fastest is on the toilet or on makes it easier to provide liquidity to the vacation. Then number 2 has a chance. But market. If one can adapt prices most leading HFT firms quicker to changing markets don’t make their money one is less likely to be taken Analysis of market microstructure because they are the fastest. advantage off by, for example, strategies are smarter and behavioral finance are areas with Their news coming out. Any market than the ones of their a lot of opportunity depends on liquidity. This is competitors or slightly more mostly provided by market aggressive when it counts. makers. They are also the early leaders and adopters of HFT as it HFT has been around for around 20 years. FXTM: What is the most important helps them do their job better. Finally it So if it would be really that bad, it should factor to reach speed: software equalizes opportunity. Electronic trading have made the same headlines before. meaning the coding of the algorithms-, levels the playing field as connections and hardware, or proximity to the order flow? relationships are far less important than in FXTM: What does it take to get into PVK : If you want to be a serious voice traded markets. The technology is the high-frequency trading space? contender for the fastest slot these days, more affordable than ever and small firms PVK : Not much, these days you can get you have to implement things in hardware can beat large established ones. a brokerage account that gives you an API and plug it directly into the exchange you can connect to with a minimum deposit with response levels pre-calculated so FXTM: What are the key risks involved of around 2K USD and you can download that your system does only execute binary in HFT today? And what should be done an open source engine like Marketcetera comparisons. to avoid them? for free to get you started. Of course there PVK : Key risks are basically poor are serious limitations to what you can do FXTM: HFT is an extremely profitable design of the strategies and infrastructure. with such a low cost setup but it can get you business. Does this come mainly from the Routinely firms that skip on safety and started on a platform that can grow with fact that HFT computers can see both don’t do things properly get carried out your skills and needs. Going forward, you some of the order flow and institutional of the market. Experience has significant will see university students and even people flash orders? value and getting people involved that have from high school starting in algo trading PVK : No, not really. If you trade via FX TRADER MAGAZINE October - December 2010 31

FX HIGH FREQUENCY TRADING a fast computer you exclude any human from competition. So that’s already a lot of people. If you then look for small but almost certain edge and scale such strategy across many underlyings and markets you make a lot of money with little risk. That’s where the juice is. Analysis of market microstructure and behavioral finance are areas with a lot of opportunity. Flash orders are only a small piece of the puzzle.

and price providers as possible to create your own synthetic central marketplace. FXTM: Will sophisticated retail traders be able to develop HTF forex strategies and models? PVK : That’s already happening. In no other market do retail guys get 400 to 1 leverage. So that’s very attractive if you have limited capital, especially as currencies have been very volatile recently.

the art algo operation from scratch and how to avoid the main pitfalls. To show people options with regards to strategies and systems. FXTM: What will be the major benefits for those who will attend? PVK : To get a thorough understanding of the subject and how to master the challenges when getting into the game. For people that are already active in the field, the courses should also give some food for thought on how to improve one’s setup.

FXTM: How is HFT doing in the FXTM: For a trading system developer, Forex space? what are the differences between PVK : Forex has the drawback of very building a high-frequency trading system few liquid pairs to trade. The liquid and a lower-frequency trading system? FXTM: How do you see HFT evolving pairs are of course crowded in the future? Do you believe that by a lot of players. Forex If you want to take maximum most hedge funds and money is an interesting market managers will incorporate advantage, you need to connect through the fragmentation HFT strategies into their own and different time zones. to as many platforms and price trading? Understanding of market PVK : Not most. It actually providers as possible to create your idiosyncrasies and market depends on your definition structure are important. own synthetic central marketplace of HFT. What is medium frequency trading now was FXTM: Are there ultra high frequency trading profitable HFT strategies or players in PVK : If things go wrong, they will 15 years ago. Many institutional investors the Forex OTC market? most likely go wrong fast and in size. So have a fairly long term horizon and it PVK : OTC and HFT are a bit of a safety is paramount. That’s not so much will take them a long time to understand contradiction. If a trade is real OTC, so the case with lower frequency trading as that some high frequency techniques negotiated over the phone rather than a human could always intervene after the can benefit them greatly. At the moment a trading system or platform you can’t first one or two bad trades or even before many consider it a fad that will pass and really call it HFT. the first one, depending on frequency. In therefore don’t engage in the topic. That’s HFT, that is often not possible. a mistake but then again, the markets are FXTM: How do you achieve speed usually a means for wealth transfer from in an OTC market without a central FXTM: During the month of many to few and not the other way round. exchange? October you will be holding various PVK : If your definition of OTC is that workshops in London, New York, FXTM: Would you like to give any of different proprietary bank platform, Dubai and Hong Kong. What is specific advice to anyone considering of course there is edge as there is always the objective of these workshops? getting into HFT? one provider that is out on the others. PVK : Mostly to educate people about PVK : Spend enough time learning Exploiting that is not a very well received the subject matter and dispel some of about the subject. Learning lessons strategy of course by the price providers. the myths surrounding the topic. Also the hard way by trial and error can be If you want to take maximum advantage, a main objective is to give people the expensive. you need to connect to as many platforms necessary information to build a state of 32 FX TRADER MAGAZINE October - December 2010

FX FUNDAMENTAL ANALYSIS

Why Invest in Asian Currencies?

W

hy Asia? Strong fundamentals. The best reason of all.

To say that Asia is a good investment destination may be an understatement based on recent trends. Certainly, you should take time to consider the many benefits of investing in the key Asian currencies. Asian economic growth is being driven by the twin powerhouses of China and India and the region will average 8% GDP growth over the next couple of years. India is planning on 8% growth for next 10 years. Asian fundamentals are strong – unlike other countries, there is low public and private debt,

foreign exchange reserves are positive and many Asian countries have current account surpluses. By contrast, post-GFC developed world growth will be low and slow for some time due to debt and budget deficit problems. Historically, equity prices are not expensive. We can say with confidence that the Emerging Seven (China, India, Brazil, Russia, Mexico, Indonesia, Turkey) will be the key drivers of global economic growth over the coming decade. In fact, Brazil, Russia, India and China already account for nearly 50% of global economic growth. The tide has well and truly turned in terms of the global economic power. Perhaps it is not surprising that we are seeing record investor inflows into Asia. This is having a direct impact on Asian currencies which are among the strongest globally.

A

sian Currencies – the ground floor of the economic elevator.

Of the many Asian investment options, why Asian Currencies? We have identified two key drivers of economic growth that inexorably lead to increased demand for infrastructure – urbanisation and demographics. 34 FX TRADER MAGAZINE October - December 2010

FUNDAMENTAL ANALYSIS

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Cons i d er th i s : 7 b il l ion p e op le l ive in Asia . Ye t , ur b an i s ati on le vels in E a st Asia are e xc ep ti ona l l y l ow by internationa l standards . A s a snap s h o t , the U K ha s an urb an ise d p op u lati on o f around 90%. Ch ina is at 43% ( ran ke d 1 2 8 th in the world ) and Ind ia is just 2 9 % ( 1 6 1 st ) . By 2030, China will add more city dwellers than th e entire US p opu lation ! Ind ia is p lann ing to sp en d US $ 1 . 5 tril l ion on infra str ucture in the n e xt 8 y e ar s . A s we kn ow, s h if ts in p opu lation from r ura l to ur b an are a s g enerate demand for urb an and s o c i a l inf ra str u cture. More ro ads ne e d to b e b u i lt , uti l i ti e s ne e d to b e provide d , housing d e ve l opm ents and lo ca l amen ities are ne e de d to supp or t th e m o ve to more de velop e d ways of l i ving .

factors in favour of Asian currencies. In addition, lower debts, p ositive current ac c ounts and F X reser ves mean these currencies are not b eing ‘’de -b a se d’’ by the mone y printing exercise se en in the West. Most Asian currencies are the tr ue ‘’hard’’ currencies of the next g eneration .

In terms o f d emo g rap h ics, emerg ing markets show a high number of young people entering the work f orc e . Th e y are increa sing ly e ducate d and s ki l l e d an d wi th th is c omes advanc e d p atterns o f in c om e , sp en d ing and wea lth creation .

There are a small number of funds now available for investors to take advantage of this changing of the g uard but we expect that this will become increasingly popular.

Hi g h er e c on om ic g rowth supp or te d by ur b an i s ati on and demo g rap h ic are the ke y

Andrew McKay FX TRADER MAGAZINE October - December 2010 35

FX

algorithmic trading

Adaptive Trading Systems Adaptive Trading Systems (ATS) can mean a lot of things to traders. Generally, it is an automated trading system that ‘adapts’ to market changes in some form.

Defining ATS

Data about ATS

What are the components of an Adaptive Trading System? Some components may include:

Trouble with doing any research on the state of ATS is that traders do not publicly disclose their trading methodology, and it is impossible to track based on their results. For example, a trader may claim to have

• Ability for a system to adapt to market changes in some form • Systems that are self-learning • Master control systems that monitor multiple sub-systems, selecting the best system for the market type • Dynamic indicators that derive value based on market types, or other derivative indicators • Should contain some type of ‘intelligence’. What ATS is not: • Static trading rules • Simple indicator based system (such as MA crossover) ATS need not be automated, although by necessity they most likely would be.

an adaptive system, when in fact it is really just a SMA crossover, or a trader placing trades manually. We can always

36 FX TRADER MAGAZINE October - December 2010

see their results (at least the broker or bank carrying their account can see) – but sometimes even that is not available. So we are left with reading either academic papers, which are usually far disconnected from the real economic world, or by trusting websites that they are actually doing what they claim. In our experience, this is false more than it is true. For example, there are 10x – 20x (magnitude) more websites promoting winning trading systems than there are actually winning trading systems. This isn’t always dishonesty – sometimes systems will work and then stop working, and webmasters will leave up the site. Or systems traders will overstate returns, or ‘cherry pick’ good results not displaying the 20 accounts the system blew up. Google has become the writer and researcher’s best researching tool; however, for this application, it will not be sufficient to conduct any study.

algorithmic trading

The question about Adaptive Trading Systems has a deep history in trading; it is a burning development question, which is much deeper than about any individual trading system or methodology. It is about the fundamental functioning of society on this planet. It is about the evolution of machine systems that industry by industry, are replacing human involved processes. Trading is real-time finance. The markets are a real-time matrix mathematically describing planet earth and human existence. Because in Capitalism, everything that can be quantified shows up on companies balance sheets at some point. Some things, such as Good Will, and Love, cannot be quantified, but they still show up on the balance sheet (we love Coca-Cola and we buy it, creating an economic transaction). The markets are the real-time allocation of economic, quantifiable resources. In the most obvious and crude form, the commodity markets determine the prices of many goods and services consumed by consumers globally. An automated trading system could theoretically affect the prices of these commodities, they are engaging in the pricing mechanism by running their own algorithm to determine not only the price but where they feel the price will go (as ATS are speculative by nature, they have an inherent forecasting

element built into them.) Thus, the evolution of ATS is the evolution of markets themselves. As more ATS are used, markets will become ‘more’ optimal, or to be more precise, the process of optimization will evolve itself to become more precise, faster, and more efficient.

FX

of truly intelligent ATS is the automated, highly calculated, and optimal distribution of resources in a global economy connected electronically through the internet. The individual ‘goal’ of the ATS will likely be for speculation and profit. But in their process of obtaining profit, how they trade capital in the markets, will balance the prices, thus optimizing market prices, and thus deciding ‘who gets what’ in the market. This unintended consequence of ATS should not be disregarded; it is the moral high ground of a sophisticated capitalist system. While the system does produce many economic losers, it also drives growth, innovation, and speculation, which drives development of ATS, which drives the development of an intelligent systemized allocation of resources. So while the individual motives, d e s i r e s , and other emotional human factors d r i v i n g humans to d e v e l o p sophisticated ATS systems, the operational result is a more efficient, optimized system.

The question about Adaptive Trading Systems is about the evolution of machine systems that are replacing human involved processes Markets are a constant process of optimization. Since real ‘optimal’ levels are areas, and not exact points, markets move (there is no exact optimal level, in fact each tick is the close to ‘optimal’ level for the market). Therefore, the long term ‘goal’

Of course, factors such as wanton wealth and resource destruction, as seen with the recent economic collapse, may defeat efforts of ATS.

FX TRADER MAGAZINE October - December 2010 37

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algorithmic trading

Examples of Adaptive Trading Systems - Dynamic Indicators This is the most common ATS that many traders use and probably do not realize what they are using is adaptive. - Chandelier Stops EES employs a plethora of volatility based parameters that are modified according to volatility. For example, when determining lot size, it will increase as volatility decreases. This is because when the market is less volatile, there is less price movement, which means both less risk and less opportunity for profit. So, on quiet days, the system should increase the lot size to compensate for the lack in trading opportunity. This can be as simple as using ATR (Average True Range) and multiplying it by a value to determine the lot size.

volatile, trade larger sizes. This is a ‘smoothing’ function that can be described as adaptive, because it adapts to the market. ATS Evolution It is not difficult to speculate on the evolution of ATS. What remains to be developed and implemented are a wide variety of intelligent trading systems that self-adjust based on market conditions. A global community of hobby traders has risen from nothing in several years using the Meta Trader 4 platform. These traders develop mostly simple rule based systems that trade automatically. While most of them are losers, many of them are quite successful, and several techniques

- V Speed V Speed is an indicator that calculates volatility based on price ranges over time. This produces an oscillating variable, which can be used as a multiplier for stop loss levels, or lot sizes. For example, as V Speed increases, divide the lot size by the V Speed value (with a normalization function to smooth the results to acceptable levels). This creates a dynamic indicator which could be said to be an ATS, because it ‘knows’ if the market is more volatile, trade smaller sizes. If the market is less 38 FX TRADER MAGAZINE October - December 2010

have surfaced using the MT4 platform that implement the ATS philosophy. An article published by the MQL4 Community explains that “it is supposed that an Expert Advisor having inputs adjusted to the history will trade to a profit for the first (rather short) time. Indirect confirmations of this suggestion appeared after I had watched the Automated Trading Championship 2006. When the Championship started there were much more profitable Expert Advisors than later, when some of them turned to be noncompetitive. This is why I suppose the most of those Expert Advisors that had not come to the finish were adjusted to the history. The idea to check this supposition in practice was born on the Russian

algorithmic trading

forum of this website, in the section Ideal Automated Trading System. The main idea is to start optimiz ation of an EA automatically once a day and then analyze the obtained optimiz ation results and record them in the E A’s variables. To implement this idea , we decided to take the readymade E x pert A d v i s o r , M A C D S a m p l e , f rom the M e t aTr a d e r 4 C l i e n t Terminal and insert our own function of automated optimization into it. A bit l ater, the code of that automated optimizer was ready and uploaded in the same forum, in the section Automated O ptimizer. After some more time, the first confirmations of the idea appeared in the branch of Automated Optimizer. Later on, the optimizer was transformed into an mqh-librar y for better usabilit y.”

is not an intellig ent system, it certa inly is not static , is more than dynamic , and has most of the criteria of an ATS. This de velopment is g rowing exponentially, as the number of MT4 traders has ballooned from tens of thousands to millions

FX

race to build intelligent automated systems for profit, money management, and fun (some developers clearly do not develop systems for money). As more intelligent systems are developed, it may affect the markets (they may already be affecting the stock market) and the intelligence ante will be upped, causing other systems to require fine tuning and updating. The process of evolution of these systems will be ongoing; no system will ever work without being constantly refined and r e t o o l e d . Automating the refining , optimization, and selflearning is the goal of any successful ATS, but how to do this is quite difficult.

No system will ever work without being constantly refined and retooled

While the automated optimizer

worldwide. As brokers do not publish their financia l re cords, these statistics are difficult to track. The growth is undeniable. Combined with accessibility of fast internet conne ctions and hig h processing power for a low price, these factors could contribute to an electronic arms

As ATS evolve, the first system that can self-evolve successfully will dominate the market. For a system like this, there is virtually no limit to its potential success. Elite E Services

FX TRADER MAGAZINE October - December 2010 39

FX WOMEN IN FOREX

Kathy Lien Interviewed by Maud Gilson “I truly believe that the more you are A-conscious of the existence of a glass ceiling, the more that you will credit your lack of progress on that and the more it will become reality”, says Kathy Lien when asked about the limitations her female gender could create. The young woman, aged only 29 years, is Managing Partner of BKForexAdvisors.com and Director of Currency Research for GFT (Global Forex Trading), where she provides research and analysis. Prior to joining GFT, Kathy was working with FXCM, also she was an Associate at JPMorgan Chase where she worked in Cross Markets and Foreign Exchange Trading. Kathy believes her gender has actually been an advantage in her fast paced career. She has vast experience within the interbank market using both technical and fundamental analysis to trade FX spot and options. “Trading without being aware of the big stories in the market and the potential event risk is akin to trading with blinders on” explains Kathy, who developed her own fundamental indicators. In this “Women in Forex” exclusive interview series from FXstreet.com, Kathy Lien tells us about her career, her opinion about being a female in Forex as well as what trading means for her. Kathy’s answers are direct and far from any stonewalling tone, as usual. 40 FX TRADER MAGAZINE October - December 2010

My gender has helped me and made me more recognizable

WOMEN IN FOREX

MG: When did you start to work in the Forex market ? KL : I started in the Forex market in 1999, straight out of college at the age of 18. Having traded equities during the tech boom, I knew that trading and not banking was my calling and so I accepted an offer to work for JPMorgan in their Trading department. My first rotation was in Credit Derivative structuring which was “the” place to be at that time and, thank goodness, I didn’t stay because otherwise I would have been partially responsible for the financial crisis! MG: Where did you move to at that moment ? KL : My second rotation was on the intermarket FX trading desk where my FX career began. I learned about the FX market and forex trading from the inside out by making markets in USD/JPY and the AUD/USD. Then JPMorgan merged with Chase and I moved to the Proprietary Trading desk where I traded instruments including FX spot, options, interest rate derivatives and equity indices. There, I learned discipline, risk control and accountability because each one of my trades was scrutinized from start to finish to ensure that I knew exactly what

FX

I was doing. A few years later, I moved into the research space because I wanted to expand my skill set and share my knowledge.

analysis.

MG: Then you worked for FXCM and GFT. What made you decide to work with GFT ?

KL : What I love the most about the forex market is that it never gets boring ! There is always something going on and something to trade. I also love how I can take the biggest stories in the world and turn them into trading opportunities.

KL : GFT gave me a great offer that included the ability to expand my footprint in Singapore and Australia. MG: Having worked the forex market from the perspective of both an institutional player as well as in the retail market, do you see any difference in the strategies and analysis between the two? KL: Bank traders trade in very different ways than retail

MG: What fascinates you in the Forex market?

MG: You are known for a trading theory that works on a “fusion of fundamental and technical analysis” - you use fundamentals to get into positions and technicals to follow through and exit ? Can you tell us how you came upon it ? KL : It took me a number of years to develop the trading style that I currently employ. Having worked on developing automated trading products in the past, I know from experience that robots do not work long term. It is important to have a systematic way of trading to create discipline but it is also important to be dynamic because markets change on a daily basis. Fundamentals are extremely important and trading without being aware of the big stories in the market and the potential event risk is akin to trading with blinders on.

I love how I can take the biggest stories in the world and turn them into trading opportunities traders. Usually bank dealers and propietary traders have the benefit of seeing flow which they can react to while retail traders do not. My analysis and current trading is very different from my original trading style at JPMorgan because I do not have the benefit of flow and have therefore developed strategies that are rooted in

FX TRADER MAGAZINE October - December 2010 41

FX WOMEN IN FOREX MG: You seem to have knack for finding useful new fundamental indicators, like the lesser-known New Zealand credit card spending numbers. How do you look for these? KL: Yes, my unique edge is my ability to predict economic surprises and capitalize on them. I spent many years creating a proprietary database of economic data and their leading indicators. One of my favorites is the employment component of nonmanufacturing ISM and Nonfarm payrolls.

ceiling in the workplace, there will be a glass ceiling. This may sound harsh, but I truly believe that the more you are A-conscious of the existence of a glass ceiling , the more that you will credit your lack of progress on that and the more it will become reality. It is all about perception. MG: So you never felt you had to struggle to find your place and recognition from your peers?

degree of balance between female and male upper management. MG: How do you think women fare in the competitive world of finance? KL : I think this depends on the person. Some women may be more competitive, others more cooperative. For example, Raghee [Horner] and I have a very friendly relationship.

Women should use their gender to their advantage especially as many banks are required to have some degree of balance

MG: You’ve met many women who have seen great success in finance and banking. How would you define the pinnacle of success for a women in finance?

KL: In the areas of finance and banking , reaching a VP [VicePresident] or MD [Managing Director] level at a bank is considered the pinnacle of success for women in finance. I worked for a female MD and have plenty of female friends who are currently VPs at banks. MG: Do you think many women run into gender problems in maledominated workplaces? KL: If you act like there is glass

KL: At JPMorgan, I worked for the youngest ever female Managing Director in Credit Derivatives who broke barriers herself and a glass ceiling was never something I even considered being a stumbling block to my career. On the propietary trading desk, I also worked for another female MD. In many ways, I feel that my gender has actually helped me. For example, there is a significant amount of male forex strategists and economists but only a handful of females. As a result, my gender makes me more recognizable. I believe that women should use their gender to their advantage especially as many banks are required to have some

42 FX TRADER MAGAZINE October - December 2010

you agree?

MG: Some say women have certain qualities that make them better traders (risk aversion, patience and a tendency to thoroughly learn before trading ).Do

KL : Yes, I completely agree. Boris Schlossberg and I trade together and he will attest that I am far more disciplined and methodical whereas he is more instinctive. PROFILE: Kathy Lien • Current Job: Director of Currency Research at GFT • Career: More than 10 years in the FX Market • Age: 29

WOMEN IN FOREX

FX

Valeria Bednarik Interviewed by Maud Gilson After 20 years in Accountancy, Valeria Bednarik left her job to dedicate herself to trading. “I had ‘invested’ in what finally was a Ponzi scheme that left 11,000 victims in South America. So I learned my lessons and decided I could only be serious about it.” After a couple of years studying and teaching through two different companies in Argentina , Valeria decided to trade from home, where she now raises her two little daughters. In this “ Women in Forex” exclusive interview series from FXstreet. com, Valeria explains how she manages to combine trading with her family but she also shares her views about the Argentinian’s economy: “The image the rest of the world has of us is merciful, it does not depict the daily reality at all.” About differences between genders, Valeria believes women actually have qualities – like rigorousness and humility - that can make them more successful traders than men. That being said, she recognizes that in the end “market does not know my gender [or] if I study or not, if I plan my trading and follow a strateg y or just bet”.

I win, I lose, it’s my job... And I love it!

FX TRADER MAGAZINE October - December 2010 43

FX WOMEN IN FOREX MG: At the Universidad Catolica del Salvador, what made you decide on a career in Accounting? VB: Overall, family tradition. All my grandparents came to this country running from WWI in Europe, with nothing; most of those immigrants had settled a very tough culture of education as essential for getting a better future. In my family, the top careers were medicine or accounting. My godfather is a CPA, and I’ve always admired him very much. I guess I felt attracted by the career he had chosen. MG: How did Forex enter your life?

Forex school I found in Argentina that was not an online school. I preferred a “real” school, maybe because of our bonds here with traditions: following an internet course is hardly considered serious study. I remember that one of the first things my master told me was that only 4 out of 100 students finish the classes. I couldn’t believe it at that point. However, as time went by, I saw how all my partners quit because of the hard work which was required. I still believe that despite the evolution of the market lately and the growth of Forex around the world, the majority of people that approaches it come with the idea of making easy money and becoming rich in a couple of trades. Of course I’m on the other side and education is for me the core

to start with this amazing adventure my life has ended being. MG: Why did you decided to leave those companies? VB: I guess at some point of my life the idea of being 100% independent became more than just a dream. I took again my chances, leaving both companies (as I left the previous one, without anything else other than myself ) and starting a solo career that consists in trading for myself and teaching to others, through my FXstreet.com position, but not only. At the moment, I have a couple of amazing traders working side by side with me, and I’m training one more, that hopefully will complete the frame.

VB: I have always been interested in finance, but up until I was 30, my life was focused on taxes and cost This could be seen as a hard career, but management, being the I enjoy every minute I dedicate General Manager of a small to the market; and what I even We learn more from those technology company, with 40 enjoy more is studying by myself employees and 3 branches in and sharing my knowledge l o s i n g t r a d e s t h a n Buenos Aires. That took all with others. I got my chance my time! Yet at some point, I from the winning ones to change my life, and I believe decided to give up that work, that we all deserve it. and focus on studying again. Forex was the second choice at that of everything in trading. So after my MG: Now you’ve changed and you’re time, as I started with stocks. Some education was complete, I stayed at the working from home. Isn’t it too hard to years before I had “invested” in what school and began teaching myself, as combine work and family? finally was a Ponzi scheme that left part of the team, focusing on reaching 11,000 victims in South America. So I the English-speaking community. VB: It sounds complicated but it’s learned my lessons and decided I could actually easy when turned into a daily only be serious about it and started to MG: From there, you became routine. I used to have an independent study. involved in MolFX, another Forex office. However, 5 years ago, with a 2school based in Argentina... year old girl and a new born at home MG: How did the opportunity to with the nanny, I asked myself what work for Trader College LLC come VB: Yes. Mol FX was developed by was the primary goal in life: work or up? another student of the Trader College. raise my two girls by myself. At that He asked me to join him in his project, time I was leaving home around VB: Well, in fact I became a student and truly I’m very thankful to all of 7 am, and coming back 12 hours of the Trader College, as it was the only them as they gave me the opportunity later. I decided no way my girls were 44 FX TRADER MAGAZINE October - December 2010

FX WOMEN IN FOREX going to be raised by someone else: they are mine, and turn them into women of value is my responsibility. So I changed my entire working schedule, and install a small office at home. MG: How is your daily schedule and how do you manage to raise your two children? VB: I wake up around 5 am, with London already opened. I wake up my family around 7 am, and my husband takes the girls to school (it’s just 1 block away, the same English school I went when I was a kid); at noon, my dad picks them up, and I wait for them with lunch; we dedicate 1 hour to eat, review homework, and then, as they are bigger now, they go back to school: they spend 3 hours in the afternoon studying English. By 4 pm, they are back home, so we spend the evening again together, they help me prepare dinner, we go to the park, or whatever they want. By 8 pm I dedicated one more hour to the market watching Nikkei opening and the tone of the Asian session opening; then have dinner and go to bed. No TV in the dining room: talking and sharing is our goal.

with an amazing career and a great job. However, he seems to be feeling the need of being 100% independent. I will give him a chance, no doubt! MG: Can you give us your thoughts on Argentina’s economy? VB: I sadly have to say that the problem here is the complete lack of a collective conscience. I will reserve my personal opinion on what’s going on in here, and why we are unable to grow as a nation, but let me tell you this: while the official data talks about 12% unemployment rate, we are closer to 30% in reality. The statistics department of our current government is

of us is merciful, it does not depict the daily reality at all. MG: How would you compare this situation to the USA and Europe? What could we learn from it? VB: There’s no way Europe or the US - with their deficit issues - are going to head down to this path. I think it’s above all cultural. I believe we have nothing to teach to the world, but much more to learn. MG: Let’s talk a bit about trading now... How did technical analysis enter your life? VB: Wow, technical analysis represented a lot of WHY along my studying stage. Why use this tool and not that one? It was my biggest problem: in Forex we have an uncountable number of tools to use; new ones are created day after day. I guess we have to come up against this situation when we are starters: we try to apply all indicators at the same time, or start the eternal search for the perfect one, the Holy Grail. It took me a couple of years to find out that it is not the tool, but how we apply it, and how we understand the behavior of a pair related to that particular tool.

No one in my family fully understands what I do !

MG: In Argentina, family is a big deal. Do your parents and cousins understand what you do? VB: No one in my family fully understands what I do! When stocks slump enough to be on news however, my closest family members give me a phone call, to see how I’m doing!!! One of my brothers is now asking me how to learn, he is a 39-year old engineer,

not only well-known as manipulated all over the world, but this has turned into a joke. Sub-employment (people working and making less money than necessary to live) is above 40%, while more than 60% of the population lives in poor conditions; we have no real public health, or public education: just this winter, 40 schools have been closed in the Capital Federal, the Federal district, because they had no heat, or broken windows had not been replaced. Away from CF things are even worst. Taxes are abusive, as they represent all in all one more than 60% of any company income... if not more. People are extremely used to do things “under the table”; yet the collected money falls into a black hole, and we still have no doctors in public hospitals. It’s is a big shame at the end. The image the rest of the world has

46 FX TRADER MAGAZINE October - December 2010

MG: Tell us about your first big win, your “ah-ha!” moment. VB: It could sound weird, yet it was not the first big win, but the first big loss: I lost over 2000 dollars in one single trade, almost 50% of my account at that time. Believe me, we learn more from those

WOMEN IN FOREX

than from the winning ones. It took me 4 months of extreme discipline to recover most of that capital, and having recovered it, following a plan and a strategy, that was my happiest moment as a trader. MG: What aspects of Technical Analysis are the most appealing to you: the visual aspect of price patterns or the crowd behavior behind it?

I stick to that, thus I always have an extra chart, where I’m testing other stuff. I guess the day I will stop studying is the day I’ll be dead. Knowledge is the base of success, and more than this knowing ourselves, our weaknesses and strengths is fundamental for me. MG: As a professional trader and experienced teacher, do you think women are more risk adverse than men?

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MG: Tell us what you think would happen in the Forex world if women become the majority? VB: Well, I can’t picture women becoming a majority in Forex – remember I live in a “macho latino world” - yet I’m pretty sure the market does not know my gender. It also ignores if I study or not, if I plan my trading and follow a strategy or just bet, and everything else. I can’t understand the market behavior fully; not sure the market can understand me either.

VB: I believe in behavior: crosses have a certain behavior related, of course, to VB: In his last book called “Come the crowd behind it. Market reflects into my trading room”, Dr. Alexander all, one should never forget that basic Elder says, and I quote him: “I find MG: Do you agree with the idea that principle of trading. The question here that the percentage of successful women have a tendency to really learn is how to filter the “all” or thoroughly before trading, while how to understand it. There men tend to learn something are so many factors affecting I can’t understand the market partially and attempt to act on it the market at the same immediately? behavior fully; not sure the time that when you start in Forex that you think there market can understand me either VB: I agree 100% with is no chance of being able to this! Women tend to study handle all of them. An easy consciously before even way to understand is doing the inverse traders is higher among women. They approaching a demo account, while men process: watch price action and that will tend to be less arrogant, and arrogance tend to start experimenting with a real one. tell you what the market is focusing on. is a deadly sin in trading. The male ego Again as stated above by Dr. Alexander It’s just a starter trick but it tends to help - that wonderful trait that has been Elder, women focus on avoiding losses to understand what the dominant forces bringing us wars, riots, and bloodshed and taking profits, more than feeding their are at the time. since time immemorial - tends to get ego. Like any human, we do have personal heavily caught up in trading”. goals and success and “fame” are great to MG: What are your favorite technical He also says that “Women traders our souls, but at least for me, not a priority. indicators and how do you use them? […] like to take profits and focus on I can’t talk for anyone else. avoiding losses instead of trying to VB: I stick to a couple of Moving prove themselves right”. This last PROFILE: Valeria Bednarik averages, Momentum, CCI and RSI to sentence is the one that describes me • Current Job: Professional Trader draw my trading map. With those tools, the best. I have done many things in and Expert Advisor for Fxstreet.com I have a general technical perspective for my life, enjoyed them all and at the • Career: 7 years in Forex, 20 years almost any possible time frame as I have end, I’m old enough to understand in Accountancy. adjusted some to be triggers, some to be I don’t need to prove anything to • Age: 41 filters, and I noticed that certain pairs work anyone, and life has punched me better with some rather than with others. enough times to erase any attempt That’s my basic frame and I usually add of arrogance. I win, I lose, its my job! trend lines, or Fibonacci retracements. And I love it!

FX TRADER MAGAZINE October - December 2010 47

FX WOMEN IN TRADING

Stephanie Radkay Stephanie Radkay, is known as “TIGR” to her fellow traders and brokers at the Chicago Mercantile Exchange and “Eats Stress for Breakfast” according to an article published in the Chicago Tribune. She brings her experience, knowledge and compassion for trading, teaching and managing stress to her clients today. Stephanie first joined the “rough” pits of the Chicago Mercantile Exchange as a clerk for a major International Options and Futures firm. In 1993 she began her broker career as the only woman in the Major Market Index Futures pit. She also joined her husband, Mike, after trading hours at the University of Trading to teach eager learners to pit trade. By 1995 she was awarded the task to fill orders in the S&P500 Futures pit. At the time this pit community had 600 men and five women. In 1998, Stephanie left the S&P500 Futures pit and followed the “Tech Boom” to fill orders in the NASDAQ100 Futures pit. By 2000, she decided to take a break from trading and in 2008 she returned to her love for the trade. With the use of tools such as the RDS Risk Calculator©, the RDS Grid © and the 5 Rule Strategy, which her husband developed during his 20+ years as a broker and self funded trader, Stephanie is happily trading and teaching again. She is currently Vice President of DTI .

48 FX TRADER MAGAZINE October - December 2010

R isk Me, R isk Me not ?

WOMEN IN TRADING If you are like me, you get dozens of newsletters in your email inbox daily and sometimes hourly. I delete most of them, but hardly ever unsubscribe because I know one of these days I am going to need the services of those I have chosen to subscribe to in the first place. One in particular caught my eye recently. It was from the owner of a yoga studio that opened about a year ago in Santa Monica, California. I am interested in following the movement and decisions of this particular owner because her business model seems unusual. She opened her studio and classes are by donation only. That’s right-you pay whatever you feel is appropriate and you can wait until the class is over to decide what you want to pay. And, they video stream live classes, on occasion, so that people all over the world can join. I am watching this business model to see how it’s working. It’s actually booming! It appears she is taking a big risk especially during this strained economic time, but I imagine it was quite calculated. As I was reading her newsletter I got to the bottom where she signed off with this quote from Ray Bradbury, “Living at risk is jumping off the cliff and building wings on the way down.” Maybe her business model was not quite calculated. Maybe she was just throwing an idea on the wall to see what stuck. I actually gasped when I read it. As a business owner I understand you have to take some risks and some chances. No risk, no goodies, as we often say. And, as a trader, of course you have to take risks. But what made me gasp was that I was looking at this quote from an educator’s point of view.

I would never teach my student to jump off a cliff and build wings on the way down. You and I both know this business is built on risk management (and oftentimes lack thereof ). What puzzles me, though, is people talk about risk management like they really understand it. Like they really have a handle on it. So tell me why people continue to blow out? I understand emotions are a major factor in a trader’s success or failure, too, but I would like to address risk first. Address your risk first, and the money will come. Recently I had a new client come to me and say, “I have my risk parameters set, but I have put $10,000 in my account so many times that I think

FX

When I first left the trading floor and tried to trade on my own, I was extremely risk adverse. I couldn’t even swallow losing $25 when I was trading the emini S&P’s. It was ridiculous. I had to step away and retrain my thoughts in order to be successful as a trader. When I came back to trading my mentor introduced me to Forex. Today I believe Forex is the greatest tool I know to use for training to trade in real dollars. Note: I am not a big believer in Sim/Demo trading for months and months. My philosophy is you need to get to know your platform which usually takes a couple of weeks and then you can start trading real dollars. You will never trade the same on the SIM/Demo as you would with real money on the line. I had another new client come and tell me she had been Sim/Demo trading the spot EURUSD for 6 months. I was appalled. What a waste of time. I asked her why she was doing this for so long and she said she was uncomfortable risking all that money real-time. Again I sat down and started to talk with her about her risk parameters, crunched some numbers and walked her through the process. This is what the process looked like: We looked at the previous day’s chart of the spot EURUSD. We found the high was 1.3118 and the low was 1.2974. The range of the day was 144 pips (high minus low). I told her that was a pretty average day in the spot currencies. They generally move about 100-200 pips per day. Trading the professional level ($10/pip/contract) would have produced a $1,440 loss if

Address your risk first, and the money will come my friend who owns the IB where I hold my account now has a private jet with all the money I’ve gone through.” So we started to talk about his risk parameters. Most often the daily risk percentage a trader sets is too high for him/her to handle emotionally. Monetarily/mathematically it might make sense, but personally it doesn’t. Add to that, the risk they set for themselves might not be suitable for the markets they are trading. Consider what you would feel like if you lost a $100 bill. Would it make a difference? Maybe not, but maybe if you lost a stack of $100 bills, that might sting a bit. Where does your pain point lie? It’s important to get to know this. You must realize, though, being extremely risk adverse will not work for trading.

FX TRADER MAGAZINE October - December 2010 49

FX WOMEN IN TRADING she bought the high and sold the low. $360 of risk over a 30 minute period mortgage. The bank might tell you Now most people don’t buy the high ($10/pip/contract) we changed it to that you qualify for a larger mortgage and sell the low all in one trade, they $36 ($1/pip/contract). According to that you can really handle. When you usually perform somewhere in between. her plan she could risk $125 per trade crunch the numbers and see what you We just wanted to familiarize ourselves which meant she could actually trade can absorb monthly and compare that with a worst-case scenario (not taking up to a 3 lot ($36x3=$108). Trading to what the monthly payment will be into account an unforeseen geopolitical more than a one lot is a very freeing on the loan, you might be shocked. event that would rock the market). feeling. If you trade a one lot, all you Actually these days banks don’t lend That calmed her down a bit. I asked can do is get in and get out. If you out too much money, so you might not the client how many times she found trade more than a one lot you can take have too much to worry about. herself trading in a day and she said, profit quickly (or loss) and manage the “A few.” Then we talked about what others as the market moves. Don’t you Additional Commentary from DTI’s it would look like if she had $10,000 hate when you cover your position and Tom Busby: in her account and she traded four the market keeps going in the direction Risk is personal and differs for times a day (I gave her an extra trade). you wanted it to go? With more than everyone no matter what size you If she was willing to risk are trading – some people no more than 5% of her should always set risk at account in any one given your own personal risk Trading with more than a one lot is trading day, she could risk tolerance, and not based $500. In other words she like having more bullets in your gun on your pocketbook. Your could risk $125 per trade emotional tolerance is what if she traded four times often determines whether (1.25% per each trade). That looked a one lot, you can capture that extra or not you will be around tomorrow reasonable to her. We were building movement. We say this is like “having to make the next trade. For example, a plan. But what about the movement more bullets in your gun”. You always some millionaires may be able to lose of the market? Where did that fit back want to have bullets in your gun. But, thousands of dollars in a day while into the equation? I told her to look at I digress. some could lose $500 and not be able the market movement over a 30 minute As you can see, risk management, to sleep at night. You need to ask period of time. We figured out, on if handled properly, can keep you out yourself – where do you fit in? It is average, it was moving about 36 pips/30 of trouble and on the right side of the crucial to think about the emotional minutes which was worth $360 per market. Take a look at the market you penalties you incur on yourself and one contract at the professional level. are trading and see if you are properly determine the comfort level of how Aha! We had previously figured out capitalized. You may have to start with you feel if a trade went so bad it was that she could risk $125 per trade and the smaller value ($1/pip/contract), detrimental to your psychological here we were saying she was going to be but you can learn and grow from there health. I have seen too many times exposed to $360 worth of risk/reward instead of blowing all your money in where a trader believes he or she can over a 30 minute time period. This did the beginning. On a side note, your withstand the mathematical risk of a not add up. I would be stuck on the IB or your FCM will tell you if you trade but folds emotionally when the Sim/Demo for six months, too, if I was have enough money in your account trade collapses and does not work out trading this plan. She was desperately according to margin, but don’t be in their favor. So, determine your risk undercapitalized. misled. Even though you might have tolerance on an emotional rather than What we decided to do was to look enough to cover margin, do you have mathematical level and be there for the at this scenario again, but this time we enough to trade more than one time? next trade. Best of luck in trading! reduced the pip value - the most amazing This situation is similar to the one thing about Forex! Instead of taking on you encounter when applying for a Stephanie Radkay, Tom Busby 50 FX TRADER MAGAZINE October - December 2010

FX TRADING PSYCHOLOGY

DISCIPLINE Why You Don’t Have It. And How to Get It.

It’s the “thing”. When you break it down and cut out all the noise, all the talk about trading systems, EAs, psycholog y, money management and risk management, what trading really comes down to is discipline. It’s the one thing that will make or break you as a trader. Winning system? Without discipline you won’t follow it. Tight spreads? Without discipline you will still over trade costing you a fortune in broker fees. Lightning fast internet connection with a spit second new feed? Without discipline you will constantly miss good trades due to your own indecision. But this is nothing new. Everyone knows you need discipline to be a trader. The question is HOW ? I’ve always believed the best teaching tools come from real

life. So I want to talk to you for a little while about something else in life that takes a great deal of discipline with roughly the same success rate as trading…weight loss. Nearly everyone reading this article can identif y with a waistline that’s become a little… unflattering. At some point the sight of yourself as you pass by the mirror on your way to the shower becomes too much for even you to tolerate. What follows is a process that is all too familiar. 1. Tell friends and family you are thinking about losing some weight. 2. Listen to those people giving you advice about how best to lose the weight. (Most are overweight as well.) 3. Get several new books by current authors covering the latest strategies for achieving

52 FX TRADER MAGAZINE October - December 2010

your goal. 4. Buy a bunch of new stuff like a blender, vitamin packs, health foods, new running shoes, exercise shorts and a g ym membership. 5. Decide to start in a week or so. 6. In a month, get the credit card bill for all the stuff you bought and de cide to g et starte d. 7. R elig iously follow your diet and exercise prog ram for a f ull we ek . 8. Start to se e some results. 9. Give yourself a “cheat day ” to reward yourself. 10. G o rig ht back to your old eating and exercise habits. 11. Put a ll your weig ht back on. This ha s b e en the pro cess for nearly every dieter in the world at one point or another. So let’s ta lk ab out the WH Y. Why is it so hard to stay discipline d

TRADING PSYCHOLOGY when dieting ? Let me frame the scenario differently. Let’s say you want to lose some weig ht and you decide you are g oing to cut out the sweets. NO MORE SUGAR ! No more soda pop or candy. No dessert or treats after meals. On its surface this seems to be a ver y simple, rational and effective plan for losing some of those unwanted pounds. How hard do you think it would be to follow ? Most people would say, “Sure Jason, it sounds simple. But it’s a lot harder than it sounds.” True, but let me add a critical piece of information. You’re stranded on a deserted island. See what I mean? With no access to processed sugar it becomes easy to follow your rules and stay disciplined. But let’s chang e our scenario one last time. What if you worked at a pastr y shop ? Not just any pastr y shop but the kind of shop that would rival Le Grenier a Pain. Ever y day you show up and create some of the most delicious morsels ever devised. You g et to smell the aroma of fresh baked sweets as the waft throug h the kitchen. The display cases are lined each day with ever y conceivable g uilt y pleasure. Occasionally you poke

your head out only to find the patrons of the shop enjoying the fruits of your labor. You see the look of satisfaction on their faces as they devour ever y last bite.

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follow your trading plan and stay disciplined is just like a commitment to cut out sugar. The problem is… The FORE X market is your baker y. Each and ever y day you sit down to trade your commitment to follow your trading plan will be tested. You’re on a diet in a pastr y shop. The market will seek at ever y turn to challenge your resolve and attempt to push you out of your comfort zone causing you to make impulsive emotional decisions rather than disciplined, planed ones. Many people will tell you it is wrong to look at the market as a living breathing entity, “ The market is not out to get you.” the saying goes. But I find in this case that it ser ves the analog y well. The “market” is the representation of ever y trader’s decision at a specific point in time. That’s all. But the market rewards risk and punishes those that follow the path of least resistance. This must be the case in order for markets to function. Because of this simple truth we can deduce that in order to succeed, we must have the strength of our convictions since they will no doubt run contrar y to many in the market.

The best teaching tools come from real life Get the picture ? So how long do you think you could stay disciplined and committed now ? Traders, your commitment to

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FX TRADING PSYCHOLOGY Remember 90% of traders l o s e m o n e y. If y o u w a n t t o be part of the 10%, look at what the 90% do, then do the opposite. If y o u’r e s t i l l r e a d i n g I ’ v e ke p t y o u i n s u s p e n s e l o n g enoug h . S o how do you stay disciplined g iven the over whelming temptation to do other wise ? Discipline is an emotional q u a l i t y. To have discipline means you have fixed yourself in a course of action and are unwilling to deviate from it. Ha v i n g d i s c i p l i n e starts with commitment. Ev e n t h i s f i r s t step causes people some problems. A lot of people think they are committed but most are not. “ There’s a difference between interest and commitment. W h e n y o u’r e i n t e r e s t e d i n doing something , you do it only when circumstances permit. When y o u’r e committed to something ,

you accept no excuses, only r e s u l t s .” - A r t Turo ckStep one to staying disciplined: Are you truly committed ? If not, you must make that commitment if you ever expect to succeed. This first step, while

In NLP and NAC ( psycholog ical pro c esses) we actua l ly ca l l th is an “anchor ”. You must l itera l ly chang e your p erc eption of rea l it y b efore you wil l tr u ly create la sting chang e. Ag a in, using the weig ht loss ana lo g y, p e op le who u ltimately ach ie ve la sting resu lts have shifted their rea l it y. Of ten th is c omes from a do ctor visit when the y are to ld the y have d iab etes . For some it c omes af ter a hear t attack , or af ter a ch ild expresses c onc ern for their wel l b eing . W h a t e v e r the cata lyst, s o m e t h i n g chang es in the ind ividua l at a f undamenta l le vel that l itera l ly a lters their p erc eption of the world . Their ne w rea l it y causes them to vie w their de cisions d ifferently and sh if ts their fo cus of what’s imp or tant. But if blowing up account after ac c ount do esn’t do the trick , how do we create th is anchor ? I find that a lack of trader d iscip l ine is the resu lt of 2 sp e cific th ing s .

The market will push you out of your comfort zone causing you to make impulsive emotional decisions rather than disciplined, planed ones simple, acts as an anchor to your trading . The commitment to succeed is what allows your mind to focus on a g oal. This is a moving targ et. As one g oal is achieved, a new commitment to a new g oal must be set, allowing you to continue your journey.

54 FX TRADER MAGAZINE October - December 2010

TRADING PSYCHOLOGY 1. A Lack of direction You simply don’t know what y o u’re d o ing . Th is sounds a l i ttl e har s h b ut the c o ld hard tr uth i s m o st traders simp ly d on’t have the education, understanding and experience to have confidence in what they are do i n g . If y o u’r e s tr u g g l i n g w i th d i s c i p l i n e r i g ht now I w o u l d v e nt ur e to say you r e a l l y q u e s ti o n if th e r e ’s s o m e t h i n g y o u’r e m i s s i n g . Some piece of th e p u z z l e y o u d o n’t y e t hav e .

tr y i n g t o f o l l o w f o r a ny l en g th o f ti m e . Fo r th o s e o f y o u w h o th i n k y o u hav e , l e t m e a s k y o u a c o up l e o f q u e s ti o n s : O ver the p a st 300 Trades, •What is the exp e ctanc y of your s ystem? •What is the avera g e D D

2. Lack of/ Un p r o f i t a b l e Tr a d i ng Sy s t em

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over the p a st 300 trades af ter ac c ounting for sl ipp a g e and c omm issions ? If your answer includes the words “ab out” or “roug h ly ” you’re wrong . You shou ld have exact fig ures . WH Y ? B e cause having those fig ures g ives your m ind someth ing to anchor to when the g o ing g ets toug h . It provides a foundation for you to bu ild your trad ing house on . If you know, for examp le, that your s ystem pro duc es 4 losing trades in a row on avera g e and that you had a ma ximum of 7 losing trades in a row over the samp le testing p erio d , you have a b a se l ine. When that 3rd , 4th and 5th losing trade c ome you can have c onfidenc e that if you are d iscip l ine d , the losses wil l so on end . Not on ly were you prep are d for th is drawdown, you were exp e cting it. You kne w it wou ld c ome. And now that it has, you are prepared for it mentally.

Having d iscip l ine star ts with a c omm itment

This one gets misunderstood. I d o n’t m e a n to suggest most tr a d e r s d o n’t hav e a w i nn i n g s y s t e m . W ha t I a m s a y i n g i s that most traders don’t K NOW i f th e i r s y s t e m i s a w i nn er o r l o s e r. T h e y hav e n e v e r d o n e a ny o f th e ha r d w o r k n e c e s s a r y t o t e s t a n d v e r i f y th e s y s t em th e y a r e tr a d i n g . I w o u l d v ent ur e t o g u e s s tha t m o s t o f y o u r e a d i n g th i s a r ti c l e hav e n o t t e s t e d th e s y s t e m y o u a r e c urr entl y

g iven your mone y mana g ement strate g y ? •What is the ma ximum D D ? •What is the avera g e numb er of losing trades ? •What is the ma ximum numb er of losing trades in a row ? •What is the avera g e Risk/ R e ward Profile ? •Given your money management s ystem, what wa s the RO I

When this happens your rea l it y

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FX TRADING PSYCHOLOGY

l i tera l l y s h i f ts . You can now c hang e what kind of effe ct y o ur d e c i s i ons have on you em o ti ona l l y b a s e d on how you now view your trading . Instead of “winning brings me pleasure an d l o s ing bring s me p a in,” y o u n ow have a ne w rea l it y : “ Fo l l owing my r u l e s bring s m e p l e a sure ; not f o l l owing my r u l e s bring s m e p a in .” Th i s i s mu c h th e s am e way s om e on e wh o us e d to o vere at du e to a l o ve o f f o o d now eats healthy b e caus e o f a l o ve f or th e ir h e a lth . Th e y have s h i f te d what bring s th em p a in an d p l e a sure b a s e d on h ow th e y vi e w th e worl d . Ima g in e h ow d i f f erent y o ur re su lts wo u l d have been over the past several m onths i f y o u had simp ly applied some if this knowledg e. But alas, you’re trading journey has g one larg ely the way of the 90%. See if this sounds familiar. ( No t un l i ke th e d ieter.)

2. L isten to those p e op le g ive you advic e ab out how b est to trade F O R E X . (Most are losing mone y hand over fist.) 3. Buy se vera l ne w b o o k s by current authors c overing the latest strate g ies for ach ie ving your g o a l .

tr a d i n g p l a n . 9 . Sta r t t o s e e s o m e r e s u l t s . 1 0 . G e t c o c k y. 11.Slip back into your old habits. 12.Blow your account out again. The secret to gaining discipline in your trading is having confidence in what y o u’r e doing . That comes from KNOWING. No t h o p i n g o r believing but K N OWI N G that if you follow you rules with consistenc y and discipline that you will achieve c o ns i stent results. No w i f you d o n’t h a v e a winning system or any idea how to test the one you have, then we have more to discuss. But that will have to wait for another a r t i c l e . Un t i l t h e n I w i s h y o u ever y success in trading and in life. Good Luck and Good Tr a d i n g ,

Most traders don’t know if their system is a winner or loser

1 . G e t intere ste d in F O R E X and find a chat room where you te l l o th er s o f y o ur interest.

4. D o O K in a demo ac c ount, de cide to g o l ive. 5. Blow your ac c ount out in a month . 6. Attend a sem inar, buy a $97 E A that prom ises you m il l ions wh ile you sle ep, j o in a sig na l ser vic e or a l ive trad ing ro om . 7. D e cide to g et serious and create a p lan to fo l low. 8 . R e l i g i o u s l y f o l l o w y o ur

56 FX TRADER MAGAZINE October - December 2010

Jason Stapleton

FX MANAGERS FX

Jamie Charles CIO of GreenWave Capital talks about the company’s short term global macro discretionary strategy and how he sees himself both as an artist, a poet and a lover of how numbers dance, and a blend of mathematician and human behavioral scientist.

INTERVIEW

Interview by JW Partners for FX Trader Magazine

Manager

Jamie Charles – GreenWave Capital

Strategy

flagship

Location

Chicago

Assets Under Management

125 million $

Type

Global macro

Style

Short term

Currencies

90 %

JW: How long have you been trading foreign exchange for and what first attracted you to this industry? Tell us about your career evolution. JC: My first exposure to forex trading began as a college student in Brussels as a junior in college. It was fascinating to me that most people carried several different currencies in their pockets. I studied at the University of Brussels and when I graduated I was lured into the excitement of trading global financial markets at Bank of America on Wall Street. I started my career as a market maker in major currencies like the ancient Deutsche mark and British pound and soon progressed as a

proprietary trader learning how to take more defined risk.

twist to the discretionary game theory of trading fx.

JW: What do you particularly like about your job? JC: Markets change and adapting to these changes are lessons in survival.

JW: When was GreenWave Capital born? JC: The basis of my main program - which is short term global macro discretionary- is the credibility of its metrics based on risk reward. JW: Is FX a unique market? In This has been a philosophy what trading currencies is different ingrained in me since I started from trading other financial trading. Any risk I take is born from instruments? a solid understanding of what are JC: A market is a market but the key determinants behind any what makes fx unique is the role idea. I then look for the right trade central banks play. The incentives location and leverage accordingly of the largest participants in forex with hard stops attached to every are not based on profitability and position. that’s quite a paradox in a world of fear and greed. This adds a perverse JW: How is the company FX TRADER MAGAZINE October - December 2010 57

FX

FX MANAGERS

structured today? JC: I have a plan for growth both in terms of aum and headcount internally as a company. Greenwave currently has 4 full time associates and I am very pragmatic about growing carefully. We are currently looking to outsource our trade administration and compliance.

contained to normally less than 10 basis points ( 10,000 euros for an account with a notional value of 10 million euros).

35 currencies and how it can best long the strongest 3 and short the weakest three currencies. The global economy has changed dramatically in the past 20 years yet most hedge funds and CTAs still focus on G-3. JW: How much time do you allocate to research and development of existing or new trading strategies? JC: Our strategies are a constantly on-going process. The greatest edge of Greenwave is its adaptability to a rapidly changing world.

JW: What are the key positions in an FX Management company? JC: A creative research team , partners with a vision of industry trends to steer the company and of course a fascinating portfolio manager. JW: You are in charge of the currency program. How would you describe your investment strateg y? JC: The strategies I created are a hybrid. When I design trading ideas I see myself as an artist, a poet and a lover of how numbers dance. As a trader I see myself as a blend of mathematician and human behavioral scientist.

JW: What is the average and maximum leverage you use? JC: An advantage of Greenwave’s Flagship strateg y is its low margin use which normally requires an average of 1 percent of any account’s notional trading level. Margin use rarely exceeds 3 percent.

Don’t trade anyone’s wealth before you’ve risked your own

JW: Risk, an exciting yet dangerous word. How do you manage it? JC: Risk is a function of leverage and margin use. We employ hard defined risk to every open position and marks to market its position so that aggregate daily losses are

JW: Do you trade less mature currencies? JC: One of Greenwave’s competitive advantages is its expanded universe of traded currencies. The flagship strateg y typically regularly analyzes 25-

58 FX TRADER MAGAZINE October - December 2010

JW: How many execution brokers do you use? How do you split execution between electronic and “dear old voice”? JC: 90 percent of my trading takes place on e-platforms but I still love the vibrations of trading with the floor.

JW: What kind of historical data do you use in developing your strategies? How important is that? JC: What I think is more relevant is the accuracy and context of historical data and how it applies

FX MANAGERS FX

are a lot of mindless correlations in vogue that actually compel a lot of traders to risk other people’s money. JW: How does liquidity impact the efficiency of your strategies? JC: Have you already explored to what AUM limit the strategies would allow you to grow to? Reliable liquidity is the basis for quantifying risk. Greenwave’s leverage and trade location are inextricably linked to any market’s liquidity consistency.

Euro will be 1.3750 by the summer of 2011 but the road there will require a lot of infrastructure improvements to today’s market. For example, if comparing the value of precious metals against energ y commodities is it more important to understand 100’s of integrated studies how to

JW: At JW we say it’s more important to plan and know how to react than forecast. Can you give us your feeling about the EurUsd over the next months? JC: The euro will survive for at least another year and that’s not said without deliberation laden with anxiety. Bernanke wants a lower dollar and though the euro may become the second weakest currency on the globe it will outperform the greenback. Euro will be 1.3750 by the summer of 2011 but the road there will require a lot of infrastructure improvements.

JW: What’s the best advise you would give to an individual trader or to a semi-professional trader who wants to enter the FX fund intra=day trade gold versus crude management industry? JC: Don’t trade anyone’s wealth or should we be comparing gold’s value in the time’s of king Tut vis a vis before you’ve risked your own. the cost of camels and goats in 100 Create your own rules and most BC. What I am saying is that there importantly, be yourself. FX TRADER MAGAZINE October - December 2010 59

FX TECHNICAL ANALYSIS

Technical outlook

MAJOR TRENDS AND TARGETS FOR THE MAJOR FX RATES Current level

Major trend

Major target

Trend change level

EUR/USD

1.3050

Sideways

USD/JPY

85.75

Down

79.91 & 74.69

97.77

USD/CHF

1.0100

Down

.9651 & .9349

1.0435

GBP/USD

1.5650

Sideways

1.5814

USD/CAD

1.0275

Sideways

1.1725

AUD/USD

.9400

Up

NZD/USD

.7275

Sideways

.7194

EUR/JPY

112.00

Sideways

12z7.92

EUR/CHF

1.3200

Down

EUR/GBP

.8350

Sideways

.8807

EUR/NOK

7.9600

Sideways

8.3181

EUR/SEK

9.2150

Down

1.3816

.9847 & 1.0740

1.2407 & 1.0400

9.0920 & 8.9596

.9077

1.4587

10.2880

MAJOR TRENDS AND TARGETS FOR FX EMERGING MARKETS Current level

Major trend

Major target

Trend change level

EUR/CZK

24.700

Down

22.925

26.614

EUR/HUF

282.50

Up

301.87 & 317.08

262.89

EUR/PLN

3.9600

Sideways

EUR/RON

4.2600

Up

USD/ILS

3.7275

Sideways

3.6634 / 3.9184

USD/RUR

31.000

Sideways

28.603 / 31.946

USD/TRL

1.5000

Sideways

1.4386 / 1.6293

USD/ZAR

7.1200

Down

60 FX TRADER MAGAZINE October - December 2010

3.8238 / 4.2454 4.6455 & 4.9363

6.4318

4.0565

7.1972 / 7.7817

TECHNICAL ANALYSIS

FX

usd/jpy U S D / J P Y p e a ke d at 1 2 4 . 1 4 i n Jun e 2 0 0 7 , a 4-5 year hig h, then broke down from a year-long bull channel connecting 109.03 & 115.17 lows to signal a downtrend. Four d istinct b ear-le g s have o c curre d sinc e that time, the most recent of which from 94.97 in May of th is year (wh ich marke d a failed upwards break from the 2 ½ year bear channel ) has reached levels not seen for over 15 years, since the recover y from the April 1995 a l l-time low at 79.91. The low so far of 82.89 is virtually spot-on the support line connecting the D e c em b er 2 0 0 8 an d No vem b er 2 0 0 9 l ow s at 87.13 & 84.83, but as yet it is too soon to call a lasting low there. The previous bear-leg s have lasted 9 months, 4 months and 7 months, so with the decline from

94.97 having lasted 4 months the recent low does have potential to be a mediumterm turning point, a lthoug h more likely at this stag e is a partial retracement of the 94.97 to 82.89 decline to around the 87.95-91.46 area (former support / 50% retracement of the initial 94.97-87.95 fall ) ahead of a further retreat lasting several more months. Below 82.89, the next measured move target area is beyond the 79.91 all-time low at around the 74.69-78.36 area . This marks a 100% extension lower from the No vem b er 2 0 0 9 -May 2 0 1 0 8 4 . 8 3 - 9 4 . 9 7 r e c o v e r y, 1 0 0 % o f t h e p r e v i o u s 1 0 1 . 4 4 84.83 decline measured from the 94.97 lower top, and near the middle of this band (76.72) it also represents a 38.2% decline from the 124.14 peak .

FX TRADER MAGAZINE October - December 2010 61

FX TECHNICAL ANALYSIS EUR/chf EUR/CHF re corde d an all-time trade d hig h at 1.6828 in October 2007, then completed a choppy multi-month top pattern and beg an retracing the rise from the September 2001 all-time trade d low at 1.4401. Losses from the 1.6828 peak breached the base of the 6 year bull channel drawn off hig her lows at 1.4502 & 1.5454, initially reaching 1.5350 in Ma r c h 2 0 0 8 b e f o r e r e c o v e r i n g t o l e a v e a l o w e r d o u b l e t o p a t 1 . 6 3 7 6 / 1 . 6 3 6 9 . Fr o m t h e r e the downtrend g athere d pace, accelerating throug h 1.4401 to reach a new all-time trade d low at 1.4322 in October 2008 before c o r r e c t i n g t o 1 . 5 8 8 1 . Fr e s h l o s s e s s i n c e t h a t time have accelerated to a succession of new lows at 1.4002, 1.3074 & 1.2771, followed by relatively brief corre ctive rallies. EUR/ CHF has lost close to 23.6% of its value (1.2856), with the 1.2771 low also being

62 FX TRADER MAGAZINE October - December 2010

ver y close to the 100% downwards extension from the 1.4322-1.5881 October-December 2 0 0 8 r e c o v e r y. Althoug h it is possible that 1.2771 marks a low for the move, with MACD remaining entrenche d in bearish territor y we remain alert to the possibility of a lower top being left below the recent one at 1.3920, ideally by 1.3497-1.3582 (50% of re cent re cover y phase / former intra-rang e support) ahead of a f urther slide over coming weeks and months. 1.2407 is our next major targ et area below 1.2771, this is 100% of the pre vious 1.4587-1.3074 bear-leg measured from the 1.3920 lower top. Long er-term, 1.0400 is a possible eventual targ et, marking a 38.2% decline from the 1.6828 peak . A foothold over 1.3513-1.3674 then 1.39201.4002 is needed to abort then reverse the current multi-week bearish bias.

TECHNICAL ANALYSIS

FX

usd/ils U S D / I L S p e a k e d a t 5 . 0 1 0 1 i n Ju n e 2 0 0 2 , with losses from there having built a major two year base around 4.2790 / 4.2925 from 2003 to 2005 ahead of attempts to resume the previous long -term rise (our records g o back to 1993 with an extreme low of 2.6970 a t s t a r t o f t h a t p e r i o d ) . H o w e v e r, a l o w e r double top was left at 4.7460 / 4.7313 in No v e m b e r 2 0 0 5 / Fe b r u a r y 2 0 0 6 , a n d t h i s marks the rig ht shoulder to an 8 year head and shoulders top pattern. This long -term reversal pattern was completed in mid to late 2006 and a two -leg g ed retreat to 3.9238 & 3.2043 in 2007 & 2008 followed, interrupted by a lower top at 4.3572. A strong recover y followed, but a lower top wa s lef t at 4.2775 in April 2009, b elow the 2007 recover y peak at 4.3572 and just under the former 2003-2005 double

bottom at 4.2790 / 4.2925. Since then f r e s h l o s s e s t o 3 . 6 6 3 4 i n Ja n u a r y 2 0 1 0 have been followed by a corrective rally to 3.9184 and there are now signs of a further decline. A move back under the 13 & 52 week moving averag es has occurred, also breaking the 3.2043-3.6634 uptrend line, to signal a resumption of the retracement of t h e 2 0 0 8 - 2 0 0 9 3 . 2 0 4 3 - 4 . 2 7 7 5 r e c o v e r y. A clean break of resistance-turned-support at 3.6469-3.6634 will point to an impending brea kdown throug h the 61.8% retracement at 3.6143, targeting the 3.3043-3.4084 area over coming months. This marks a 100% of the 4.2775-3.6634 decline from 3.9184 and 100% lower from the 3.66343 . 9 1 8 4 r e c o v e r y. S t e v e Ja r v i s

FX TRADER MAGAZINE October - December 2010 63

FX INTERNATIONAL DATA

FX SPOT MONITOR Country

Flag

USD Spot

Last vs USD

% Ch 3M

% Ch 12M

12mth High

12mth Low

Eurozone

EUR=

1.3467

10.6%

-7.9 %

1.5987

1.2457

UK

GBP=

1.5826

5.1%

-0.4 %

2.008

1.3746

Japan

JPY=

84.14

-5.0%

-6.1%

110.49

87.31

Switzerland

CHF=

0.9857

-8.9%

-4.5%

1.2241

0.9843

Australia

AUD=

0.9590

13.3%

9.9%

0.9787

0.6018

Canada

CAD=

1.0235

-3.0%

-5.7%

1.2995

0.9832

New Zealand

NZD=

0.7337

6.1%

2.5%

0.8097

0.4923

Sweden

SEK=

6.797

-12.7%

-2.6%

9.2927

5.838

Norway

NOK=

5.8631

-9.9%

0.8%

7.2227

4.953

Iceland

ISK=

114.21

-11.0%

-7.9%

147.55

71.67

Israel

ILS=

3.67

-5.4%

-2.5%

4.236

3.213

South Africa

ZAR=

6.9978

-8.8%

-5.8%

11.62

7.2025

Egypt

EGP=

5.697

0.1%

3.5%

5.694

5.2825

Saudi Arabia

SAR=

3.7501

0.0%

0.0%

3.7685

3.7115

Czech Rep.

CZK=

18.263

-13.7%

6.0%

23.438

14.404

Poland

PLN=

2.9322

-14.1%

2.2%

3.9003

2.0221

Hungary

HUF=

205.82

-12.8%

11.9%

251.64

143.19

Russia

RUB=

30.564

-2.5%

1.4%

36.3438

23.1531

Turkey

TRY=

1.4755

-7.2%

-1.0%

1.806

1.1512

China

CNY=

6.6933

-1.5%

-2.0%

7.083

6.8108

Hong Kong

HKD=

7.7577

-0.4%

0.1%

7.8142

7.7483

Singapore

SGD=

1.3222

-5.7%

-6.8%

1.5562

1.3476

Taiwan

TWD=

31.377

-2.6%

-3.2%

35.21

29.996

India

INR=

45.03

-3.1%

-5.7%

51.96

39.75

South Korea

KRW=

1147.7

-5.7%

-3.7%

1570.1

973.5

Thailand

THB=

30.56

-5.6%

-8.9%

36.26

31.04

Malaysia

MYR=

3.0881

-4.8%

-11.2%

3.726

3.1305

Indonesia

IDR=

8950

-1.1%

-7.7%

12100

9070

Philippines

PHP=

43.885

-5.5%

-7.5%

49.94

43.3

Mexico

MXN=

12.5303

-2.7%

-7.4%

15.555

9.858

Brazil

BRL=

1.7103

-5.6%

-4.2%

2.511

1.5591

Chile

CLP=

486.5

-10.7%

-10.5%

682.5

430.6

Venezuela

VEB=

2144.6

0.0%

0.0%

2144.6

2144.6

Colombia

COP=

1801.8

-6.0%

-6.1%

2608.15

1655.9

Levels Date:25-Sep-10 64 FX TRADER MAGAZINE October - December 2010

Source: Thomson Reuters

INTERNATIONAL DATA FX

CENTRAL BANKS Country

Central Bank

Rate Name

Actual

Previous

USA

FED

Fed funds

0-0.25

0.25

Eurozone

ECB

Refi

1.00

1.00

UK

BOE

Bank Repo

0.50

0.50

Japan

BOJ

O/N Call

0.10

0.10

Switzerland

SNB

3 mth Libor

0.25

0.25

Australia

RBA

Cash

4.50

4.50

Canada

BOC

O/N Funding

1.00

0.75

New Zealand

RBNZ

Cash

3.00

3.00

Sweden

Riksbank

Repo

0.75

0.50

Norway

Norges Bank

Depo

2.00

2.00

Iceland

CBI

Policy

6.25

7.00

Israel

BOI

Short Term Lending

1.75

1.75

South Africa

Reserve Bank

Repurchase

6.00

6.50

Egypt

CBE

O/N Depo

8.25

8.25

Czech Rep.

CNB

2 Week Repo

0.75

0.75

Poland

NBP

28 Day Intervention

3.50

3.50

Hungary

MNB

2 Week Depo

5.25

5.25

Russia

CBR

Refinancing

7.75

7.75

Turkey

TCMB

O/N Borrowing

7.00

7.00

China

PBC

1 Year Lending

5.31

5.31

Taiwan

CBC

Discount

1.375

1.375

India

RBI

Repo

6.00

5.75

South Korea

BOK

O/N Call

2.25

2.25

Thailand

BOT

Repo

1.75

1.50

Indonesia

BI

BI

6.50

6.50

Philippines

BSP

Repo

4.00

4.00

Mexico

BDM

Target

4.50

4.50

Brazil

BCB

Selic

10.75

10.75

Chile

CBC

MPR

2.50

2.00

Levels Date: 25-Sep-10

Flag

Source: Thomson Reuters FX TRADER MAGAZINE October - December 2010 65

FX INTERNATIONAL DATA ECONOMIC DATA GDP

CPI

Industrial Production

Unemployment

y-o-y

y-o-y

y-o-y

level

USA

2.00

1.10

0.20

9.60

Eurozone

1.90

1.60

0.00

10.00

UK

1.60

3.10

0.30

7.80

Japan

1.10

-1.10

0.30

5.20

Switzerland

3.40

0.30

3.80

Australia

3.30

3.10

5.10

Canada

2.00

1.70

New Zealand (partecipation)

1.90

Sweden

3.70

0.90

2.90

7.40

Norway

0.10

1.90

0.10

2.90

South Africa

3.00

3.70

7.50

25.30

Czech Rep.

2.40

1.90

5.30

8.60

Poland

3.50

2.00

13.50

11.30

Hungary

1.00

3.70

9.00

11.00

Russia

2.50

0.40

7.00

6.90

China

10.30

3.30

13.90

India

7.40

Mexico

7.60

0.10

5.40

5.40

Brazil

8.80

0.04

8.70

6.70

8.10 68 (partecipation)

13.80

Levels Date: 25-Sep-10

Source: Thomson Reuters

FX POLL 3 Month

Days since Poll

Poll Median

Poll Min

Poll Max

Poll Mean

Std Deviation

Spot@Poll Date

EurUsd

25

1.25

1.12

1.37

1.248

0.045

1.2798

GbpUsd

25

1.52

1.35

1.65

1.522

0.059

1.5446

AudUsd

25

0.88

0.76

0.93

0.879

0.034

0.9104

UsdJpy

25

86

75

95

86.2

3.6

84.43

UsdChf

25

1.056

0.95

1.13

1.054

0.041

1.0153

UsdCad

25

1.043

0.96

1.15

1.042

0.037

1.0504

EurJpy

25

108

95.2

119.2

107.8

5.7

108.07

EurChf

25

1.318

1.203

1.426

1.314

0.046

1.3002

EurGbp

25

0.819

0.784

0.893

0.82

0.022

0.8283

GbpJpy

25

132

112.5

149.2

131.2

6.9

130.39

1 Year

Days since Poll

Poll Median

Poll Min

Poll Max

Poll Mean

Std Deviation

Spot@Poll Date

EurUsd

25

1.225

1

1.38

1.229

0.088

1.2798

GbpUsd

25

1.535

1.29

1.75

1.53

0.096

1.5446

AudUsd

25

0.89

0.7

1.025

0.89

0.063

0.9104

UsdJpy

25

95

82.7

106

93.8

5.7

84.43

UsdChf

25

1.1

0.9

1.25

1.088

0.078

1.0153

UsdCad

25

1.03

0.9

1.2

1.041

0.056

1.0504

EurJpy

25

114.5

90

131.5

115.2

9

108.07

EurChf

25

1.35

1.053

1.485

1.339

0.081

1.3002

EurGbp

25

0.801

0.725

0.895

0.805

0.038

0.8283

GbpJpy

25

144.5

116.8

168

143.1

10.8

130.39

Levels Date:

25-Sep-10

66 FX TRADER MAGAZINE October - December 2010

Source: Thomson Reuters

INTERNATIONAL DATA FX MARKETS VIEW Stock Indices

Last

% Ch 6M

% Ch 12M

MSCI World

1183.03

-0.6

5.4

10662.42

0.2

S&P 500

1124.83

Nasdaq 100

2023.84

Eurostoxx 50

2792.75

-3.8

-1.6

Bonds

UK FTSE 100

5598.48

-1.4

10.2

5Y Euro

Dow Jones Ind.

Commodities

Last

% Ch 6M

% Ch 12M

Gold

1298.35

17.75%

36.38%

Silver

21.56

24.99%

40.82%

11.9

Brent DTD

79.47

0.65%

18.80%

-1.6

9.3

WTI

74.58

-9.20%

15.01%

3.7

18.4 Last

% Ch 6M

% Ch 12M

1.553

-0.610

-0.859

Dax

6298.3

4.3

12.4

10Y Euro

2.351

-0.760

-0.903

Cac 40

3782.48

-4.2

0.6

10Y US Treasury

2.607

-1.252

-0.675

30Y US Treasury

3.793

-0.955

-0.236

10Y UK Gilt

3.04

-0.948

-0.588

10Y CH Govt Bond

1.406

-0.518

-0.657

Last

% Ch 6M

% Ch 12M

FT MIB

20607.72

-9.6

-10.2

Swiss SMI

6360.77

-7.5

1.4

Nikkei 225

9471.67

-12.4

-10.2

Australia AORD

4651.506

-5.1

-1.2

HK Hang Seng

22119.43

5.3

5.1

Shanghai Comp.

2591.55

-15.5

-12.7

US 6M Depo

0.4641

0.0222

-0.1747

Singapore StraitT.

3092.68

7.1

15.9

EUR 6M Depo

1.1370

0.1930

0.1190

India BSE30

20045.18

14.9

19.4

GBP 6M Depo

1.0244

0.1450

0.2919

Brazil Bovespa

68794.32

-1.0

13.6

CHF 6M Depo

0.2450

-0.0908

-0.1517

Russia RTSI

1448.67

-1.7

19.8

JPY 6M Depo

0.4288

-0.0200

Money Markets

Levels Date: 25-Sep-10

-0.1175 Source: Thomson Reuters

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FX TRADER MAGAZINE October - December 2010 67

FX Economic Calendar OCTOBER, NOVEMBER, DECEMBER 2010 GMT London Time

October

Wed 6

Thu 7

Fri 8

10 Sun

12 Tue

13 Wed

14 Thu

15 Fri

18 Mon

19 Tue

19 Tue

USD

Building Permits

9:00am

CAD BOC Rate Statement

9:00am

CAD Overnight Rate

8:15am

USD

10:00am

CAD Ivey PMI

8:30pm

AUD Employment Change

4:30am

GBP

MPC Meeting Minutes

8:30pm

AUD Unemployment Rate

4:30am

GBP

Public Sector Net Borrowing

-

GBP

Asset Purchase Facility

8:30am

USD

Unemployment Claims

-

GBP

MPC Rate Statement

10:00am

USD

Philly Fed Manufacturing Index

7:00am

GBP

Official Bank Rate

10:30am

CAD BOC Monetary Policy Report

7:45am

EUR

Minimum Bid Rate

11:15am

CAD BOC Press Conference

8:30am

CAD Building Permits m/m

4:30am

GBP

Prelim GDP q/q

8:30am

EUR

ECB Press Conference

4:30am

GBP

Retail Sales m/m

8:30am

USD

Unemployment Claims

7:00am

CAD Core CPI m/m

8:30am

CAD Core Retail Sales m/m

24 Sun

8:30pm

AUD PPI q/q

25 Mon

10:00am

USD

Existing Home Sales

10:00am

USD

CB Consumer Confidence

8:30pm

AUD CPI q/q

10:00pm

NZD NBNZ Business Confidence

-

ADP Non-Farm Employment Change

8:30am

20 Wed

21 Thu

22 Fri

CNY Trade Balance

4:30am

GBP

7:00am

CAD Employment Change

PPI Input m/m

7:00am

CAD Unemployment Rate

8:15am

CAD Housing Starts

8:30am

USD

Non-Farm Employment Change

8:30am

USD

Unemployment Rate

8:30am

USD

Core Durable Goods Orders m/m

9:55am

USD

Prelim UoM Consumer Sentiment

10:00am

USD

New Home Sales

8:30pm

AUD Home Loans m/m

4:00pm

NZD Official Cash Rate

10:00pm

CNY GDP q/y

4:00pm

NZD RBNZ Rate Statement

10:00pm

CNY Industrial Production y/y

4:30am

GBP

10:30am

CAD BOC Business Outlook Survey

2:00pm

USD

FOMC Meeting Minutes

4:30am

GBP

Claimant Count Change

5:45pm

NZD Retail Sales m/m

8:30am

CAD Trade Balance

8:30am

USD

PPI m/m

8:30am

USD

Trade Balance

8:30am

USD

Unemployment Claims

5:45pm

NZD CPI q/q

8:30am

USD

Core CPI m/m

8:30am

USD

Core Retail Sales m/m

Manufacturing Production m/m

26 Tue

27 Wed

28 Thu

29 Fri

31 Sun

-

GBP

Nationwide HPI m/m

-

JPY

BOJ Press Conference

8:30am

USD

Unemployment Claims

-

JPY

BOJ Press Conference

5:30am

CHF KOF Economic Barometer

8:30am

CAD GDP m/m

8:30am

USD

9:00pm

CNY Manufacturing PMI

Advance GDP q/q

November

1 Mon

-

GBP

Halifax HPI m/m

5:30am

GBP

Manufacturing PMI

10:00am

USD

ISM Manufacturing PMI

5:45pm

NZD Labor Cost Index q/q

8:30am

USD

Retail Sales m/m

9:00am

USD

TIC Long-Term Purchases

11:30pm

AUD Cash Rate

8:30pm

AUD Monetary Policy Meeting Minutes

11:30pm

AUD RBA Rate Statement

4:00am

EUR

German Ifo Business Climate

4:15am

CHF Retail Sales y/y

4:30am

GBP

CPI y/y

8:30pm

AUD Building Approvals m/m

5:00am

EUR

German ZEW Economic Sentiment

5:30am

GBP

68 FX TRADER MAGAZINE October - December 2010

2 tue 3 Wed

Services PMI

Economic Calendar FX

3 Wed

4 Thu

5 Fri

7 Sun 9 Tue

10 Wed

11 Thu 12 Fri 14 Sun 15 Mon

8:15am

USD

ADP Non-Farm Employment Change

10:00am

USD

ISM Non-Manufacturing PMI

3:15pm

USD

FOMC Statement

-

JPY

BOJ Press Conference

3:15pm

USD

Federal Funds Rate

5:30am

GBP

CPI y/y

5:45pm

NZD

Employment Change q/q

6:00am

EUR

German ZEW Economic Sentiment

5:45pm

NZD

Unemployment Rate

9:30am

USD

PPI m/m

8:30pm

AUD

Retail Sales m/m

10:00am

USD

TIC Long-Term Purchases

8:30pm

AUD

Trade Balance

5:30am

GBP

Claimant Count Change

5:30am

GBP

MPC Meeting Minutes

9:30am

USD

Building Permits

15 Mon

16 Tue

7:50pm

JPY

Prelim GDP q/q

8:30pm

AUD

Monetary Policy Meeting Minutes

-

GBP

Asset Purchase Facility

-

GBP

MPC Rate Statement

8:00am

GBP

Official Bank Rate

9:30am

USD

Core CPI m/m

8:00am

USD

Unemployment Claims

5:30am

GBP

Public Sector Net Borrowing

8:45am

EUR

Minimum Bid Rate

9:30am

USD

Unemployment Claims

17 Wed

18 Thu

11:00am

USD

Philly Fed Manufacturing Index

19 Fri

5:30am

GBP

Retail Sales m/m

22 Mon

10:00pm

NZD

Inflation Expectations q/q

Employment Change

5:00am

EUR

German Ifo Business Climate

CAD

Unemployment Rate

8:00am

CAD

Core CPI m/m

8:30am

CAD

Building Permits m/m

9:30am

CAD

Core Retail Sales m/m

8:30am

USD

Non-Farm Employment Change

9:30am

USD

Prelim GDP q/q

8:30am

USD

Unemployment Rate

11:00am

USD

Existing Home Sales

10:00am

USD

Pending Home Sales m/m

9:30am

USD

Core Durable Goods Orders m/m

8:30pm

AUD

Home Loans m/m

11:00am

USD

New Home Sales

5:30am

GBP

Manufacturing Production m/m

9:15am

CAD

Housing Starts

3:00pm

USD

FOMC Meeting Minutes

4:00pm

NZD

RBNZ Financial Stability Report

8:30pm

AUD

Private Capital Expenditure q/q

-

CNY

Trade Balance

9:30am

USD

Unemployment Claims

6:30am

GBP

BOE Gov King Speaks

26 Fri

5:30am

GBP

Revised GDP q/q

6:30am

GBP

BOE Inflation Report

6:30am

CHF

KOF Economic Barometer

28 Sun

10:00pm

NZD

NBNZ Business Confidence

9:30am

CAD

Trade Balance

29 Mon

9:30am

USD

Trade Balance

8:30pm

AUD

Employment Change

8:30pm

AUD

Unemployment Rate

10:00pm

CNY

Industrial Production y/y

9:30am

USD

Unemployment Claims

3:00am

EUR

German Prelim GDP q/q

5:30am

GBP

PPI Input m/m

10:55am

USD

Prelim UoM Consumer Sentiment

5:45pm

NZD

Retail Sales m/m

9:30am

USD

Core Retail Sales m/m

9:30am

USD

Retail Sales m/m

5:45pm

NZD

PPI Input q/q

9:30am

EUR

ECB Press Conference

10:00am

CAD

Ivey PMI

8:30pm

AUD

RBA Monetary Policy Statement

7:00am

CAD

7:00am

23 Tue

24 Wed

25 Thu

30 Tue

-

GBP

Nationwide HPI m/m

9:30am

CAD

GDP m/m

11:00am

USD

CB Consumer Confidence

8:30pm

AUD

GDP q/q

9:00pm

CNY

Manufacturing PMI

December

1 Wed

2 Thu

-

GBP

Halifax HPI m/m

5:30am

GBP

Manufacturing PMI

9:15am

USD

ADP Non-Farm Employment Change

11:00am

USD

ISM Manufacturing PMI

4:15am

CHF

Retail Sales y/y

8:45am

EUR

Minimum Bid Rate

FX TRADER MAGAZINE October - December 2010 69

FX Economic Calendar

2 Thu

3 Fri

6 Mon

7 Tue

8 Wed

9:30am

EUR

ECB Press Conference

5:30am

GBP

CPI y/y

9:30am

USD

Unemployment Claims

6:00am

EUR

German ZEW Economic Sentiment

11:00am

USD

Pending Home Sales m/m

9:30am

USD

Core Retail Sales m/m

8:30pm

AUD Building Approvals m/m

9:30am

USD

PPI m/m

8:30pm

AUD Home Loans m/m

9:30am

USD

Retail Sales m/m

8:30pm

AUD Retail Sales m/m

3:15pm

USD

FOMC Statement

8:30pm

AUD Trade Balance

3:15pm

USD

FOMC Statement

5:30am

GBP

8:00am

CAD Employment Change

5:30am

GBP

Claimant Count Change

8:00am

CAD Unemployment Rate

6:00am

GBP

Inflation Report Hearings

9:30am

USD

Non-Farm Employment Change

9:30am

USD

Core CPI m/m

9:30am

USD

Unemployment Rate

10:00am

USD

TIC Long-Term Purchases

11:00am

USD

ISM Non-Manufacturing PMI

10:00am

NZD NBNZ Business Confidence

9:30am

CAD Building Permits m/m

4:30am

CHF

Libor Rate

11:00am

CAD Ivey PMI

4:30am

CHF

SNB Monetary Policy Assessment

11:30pm

AUD Cash Rate

4:30am

CHF

SNB Press Conference

11:30pm

AUD RBA Rate Statement

9:30am

USD

Building Permits

5:30am

GBP

9:30am

USD

Unemployment Claims

10:00am

CAD BOC Rate Statement

11:00am

USD

Philly Fed Manufacturing Index

10:00am

CAD Overnight Rate

5:30am

GBP

Current Account

8:30pm

AUD Employment Change

5:30am

GBP

Retail Sales m/m

8:30pm

AUD Unemployment Rate

8:30pm

AUD Monetary Policy Meeting Minutes

4:00pm

NZD Official Cash Rate

4:00pm

NZD RBNZ Press Conference

4:00pm

NZD RBNZ Rate Statement

14 Tue

Services PMI

15 Wed

16 Thu

Manufacturing Production m/m 17 Fri Mon 20

21 Tue

-

JPY

BOJ Press Conference

5:00am

EUR

German Ifo Business Climate

8:00am

CAD Core CPI m/m

-

CNY Trade Balance

9:30am

CAD Core Retail Sales m/m

-

GBP

Asset Purchase Facility

5:45pm

NZD Current Account

-

GBP

MPC Rate Statement

5:30am

GBP

MPC Meeting Minutes

8:00am

GBP

Official Bank Rate

11:00am

EUR

Existing Home Sales

9:15am

CAD Housing Starts

5:45pm

NZD GDP q/q

9:30am

USD

9:30am

CAD GDP m/m

10:00pm

CNY Industrial Production y/y

9:30am

USD

Core Durable Goods Orders m/m

5:30am

GBP

9:30am

USD

Unemployment Claims

9:30am

CAD Trade Balance

11:00am

USD

New Home Sales

9:30am

USD

Trade Balance

27 Mon

-

GBP

Nationwide HPI m/m

10:55am

USD

Prelim UoM Consumer Sentiment

28 Tue

10:00am

USD

CB Consumer Confidence

12 Sun

7:50pm

JPY

Tankan Manufacturing Index

6:30am

CHF

KOF Economic Barometer

13 Mon

5:45pm

9:30am

USD

Unemployment Claims

9 Thu

10 Fri

22 Wed

Unemployment Claims PPI Input m/m

NZD Retail Sales m/m

70 FX TRADER MAGAZINE October - December 2010

23 Thu

30 Thu

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